Argus Embarks On Norwegian Cruise Lines With A Buy

Argus initiated coverage of Norwegian Cruise Line Holdings Ltd NCLH with a Buy and a $68 price target for the shares. 

Norwegian Cruise Lines, being smaller than the other cruise lines such as  Royal Caribbean Cruises Ltd RCL and Carnival Corp CCL, has more room to increase capacity over the next several years, analyst John Staszak said in a Wednesday note. 

The Miami-based company is a mid-cap cruise company offering cruises to 510 destinations worldwide.

Norwegian recently returned to China after several years, with the addition of Norwegian Joy, Staszak said. (See Staszak's track record here.) The company plans to spend $1 billion annually to construct new ships through 2020, the analyst said. 

Argus projects the additional capacity will boost revenue and margins as new ships generate more revenue per berth. The firm also said Norwegian stands to benefit from its clean balance sheet and experienced management team, as well as growing demand for cruise vacations.

Norwegian's shares have recently pulled back after outperforming since the IPO, offering a favorable entry point, Staszak said. The valuation appears attractive, at just 13.1 times the cruise line's 2017 earnings per share estimate, well below the average multiple of 21 for hotel and cruise line companies, Staszak said. 

"Our target price of $68 implies a potential total return of 27 percent from current levels," the analyst said. 

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