Global travel and tourism are surging, with expectations that it will contribute an unprecedented $11.1 trillion to the global economy. This substantial rise in tourism presents a significant opportunity for the cruise industry, with Norwegian Cruise Line Holdings (NCLH) standing out for its impressive performance and potential opportunities. The company has demonstrated a robust recovery following the global pandemic, with a sound revenue increase, record bookings, and a positive net income.
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Moreover, with the recent transition to Amazon Web Services (AMZN) for shore-side operations, the company has consolidated its operations and positioned itself for an anticipated 10% increase in global cruise capacity from 2024 to 2028. The shares trade at a discount to industry peers, making this a compelling opportunity for value investors.
Norwegian Cruise Line Charting a New Course
Norwegian Cruise Line Holdings is a global cruise company with a strong presence in North America, Europe, Asia-Pacific, and other international markets. The company operates under three distinct brands: Norwegian Cruise Line, Oceania Cruises, and Regent Seven Seas Cruises.
Management has unveiled its “Charting the Course” strategy, an ambitious approach to revamp its vision and improve shareholder returns. The strategy includes ambitious three-year financial and sustainability targets to be met by 2026, including improving financial performance and reducing greenhouse gas emissions by 10% from 2019. This is complemented by an ambitious new build program, which includes eight new ships and the construction of a multi-ship pier at the company’s private island destination in the Bahamas.
In addition, the company has recently migrated its shoreside technology infrastructure to Amazon Web Services (AWS), making it one of the first passenger cruise lines to make such a move. The migration, completed over 15 months, involved transitioning over 100 applications, numerous servers, data center environments, and peripheral server rooms to the cloud. With this migration, management expects lower processing time, higher availability during peak periods, streamlined operations, and an improved cruising experience.
In addition, Norwegian is now set to harness AI to enhance its operations and customer experiences, with analytics, machine learning, and AI services facilitating the rapid prototyping of new features and services.
Norwegian Cruise Line’s Recent Financial Results & Future Outlook
The company recently released its results for Q1 2024. Revenue was $2.19 billion, short of the analyst’s estimates of $2.24 billion but a 20% increase over total revenue in Q1 2023. Operating costs improved due to the company’s continuous margin enhancement initiative.
Occupancy for Q1 2024 was 104.6%, meeting the guidance, with an 8% rise in total revenue per Passenger Cruise Day compared to the first quarter of 2023. Adjusted EBITDA nearly doubled from the previous year, totaling $464.0 million, while the Adjusted earnings per share (EPS) of $0.16 exceeded the guidance of $0.09.
Due to strong demand and an improved outlook for the year, management has increased its full-year 2024 guidance, projecting Net Yield growth from 6.4% to 7.2%, raising the expected adjusted EBITDA from $2.25 billion to $2.30 billion, and raising the Adjusted EPS from $1.32 to $1.42.
What Is the Price Target for NCLH Stock?
The stock collapsed after the COVID pandemic, though it has recently shown signs of a rebound, climbing over 9% in the past three months. It trades at the high end of its 52-week price range of $12.71 – $22.23 and shows positive price momentum, trading above its 20-day (18.27) and 50-day (17.85) moving averages. It trades at a discount to industry peers with a P/S ratio of 1.02x, compared to the Travel Services industry average of 3.5x.
Analysts following the company have taken a cautiously optimistic stance on the stock. For instance, Mizuho analyst Benjamin Chaiken recently upgraded the shares to Buy from Neutral while raising the price target from $21 to $24. He noted the upside to earnings from a favorable industry supply backdrop, incremental cost controls specific to the company, and a reorganization of its routes helping to drive greater yields and operating leverage.
Norwegian Cruise Line is rated a Hold based on the recommendations and price targets assigned by 14 analysts. The average price target for NCLH stock is $20.35, representing a potential upside of 2.47% from current levels.
Conclusion on Norwegian Cruise Line
Norwegian Cruise Line’s robust recovery following the pandemic and its transition to Amazon Web Services positions it for a 10% increase in global cruise capacity by 2028. Its recent financial results revealed a 20% increase in revenue and doubled Adjusted EBITDA, spurring an upward revision to guidance for 2024. The shares are trading at a discount, making NCLH a potentially attractive option for savvy value investors.
