Norwegian Cruise Now A Buy, But An Analyst Actually Prefers A Different Cruise Line

Norwegian Cruise Line Holdings Ltd’s NCLH third-quarter preview shows a significant improvement in bookings, indicating that the company’s occupancy has caught up with that of other cruise lines even with higher pricing than 2019 levels, according to UBS.

The Norwegian Cruise Line Analyst: Robin Farley upgraded the rating for Norwegian Cruise Line from Neutral to Buy, while reducing the price target from $18 to $15.

The Norwegian Cruise Line Thesis: The company’s pre-announcement shows third-quarter occupancy at 82%, up from 65% in the previous quarter, with low-single digit growth in net revenue per cruise day and high-single digit growth in gross revenue, Farley said in the upgrade note.

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The analyst lowered the loss per share estimate for 2022 from $4.97 to $4.66 and the earnings per share estimate for 2023 from $1.44 to $1.55.

“We see NCLH as our next most preferred name due to relatively greater concentration of domestic passengers sourced and strong pricing given its higher exposure to the luxury segment,” Farley wrote.

The analyst was even more bullish on competitor Royal Caribbean Cruises Ltd RCL, adding that "we are more optimistic on price for 2023, which raises our RCL net yield estimate by 270bps to +2.5% vs. 2019."  Farley adjust the price target for RCL from $65 to $56.

The analyst also pointed to Carnival Corp CCL as facing challenges ahead. "CCL is at risk of underperforming on yield growth relative to the other two cruise companies because of its greater European passenger sourcing as well as the strengthening US dollar," the analyst wrote. Adding that "we still see upside for CCL as demand recovers."

“Given concerns about the lower end consumer in a recession, we note that NCLH has less exposure to the broader end of the market, with the Regent and Oceania brands comprising 14% of the total fleet,” he wrote.

Benzinga data shows analysts have a consensus Buy rating on NCLH. 

NCLH Price Action: Shares of Norwegian Cruise Line had risen by 8.17% to $12.58 at the time of publication Wednesday.

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