Is Norwegian Cruise Line Stock Still A Buy After Rallying 20% Over The Last Month?

by Trefis Team
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Norwegian Cruise Line stock (NYSE: NCLH) has rallied by almost 20% over the last month, compared to the S&P 500 which gained just about 1% over the same period. There have been multiple positive developments for the company in recent weeks, with the re-opening of the company’s cruising operations likely to happen sooner than anticipated.

While Norwegian is likely to start cruises from the U.S. around early August, it says that it now plans to operate 23 of its 28 ships through early 2022. This is higher than anticipated. Moreover, the company said that it would begin cruising to Alaska from early August following the passage of the U.S. Alaska Tourism Restoration Act, which temporarily enables cruise ships to sail to Alaska, bypassing a legal requirement to make a stop at ports in Canada, which has banned cruses until 2022. Cruise companies had previously canceled their trips to Alaska, which is a popular summer cruising destination. Separately, the CDC also recently issued new guidelines easing mask-wearing requirements and social-distancing guidelines for fully vaccinated passengers on cruises. This could give potential cruise customers confidence that cruising is a relatively safe activity post-vaccination.

While 2021 will be a year of transition for the company, as business gradually re-opens following a hiatus of over a year, 2022 is looking much stronger, with consensus estimates pointing to revenues of about $6 billion, just slightly below the $6.5 billion in revenue the company posted in 2019. Ticket prices have also apparently been strong, trending above 2019 levels. Although Norwegian’s higher levels of leverage (debt has doubled to $12 billion from pre-pandemic levels) are a concern, the stock could still be worth a look considering that it remains down by about 45% from its 2019 levels.

See our analysis on Norwegian Cruise Line Stock Chances Of Rise for more details on the stock’s recent performance and where it could be headed.

[5/21/2021]

Norwegian Cruise Line stock (NYSE: NCLH) has gained about 13% year-to-date, marginally outperforming the S&P 500 which is up by about 11%. Below, we take a look at some of the recent development for the company and the cruising industry and what the outlook could be like for Norwegian stock.

There have been two largely positive developments for the recreational cruising space this month. Firstly, the U.S. Centers for Disease Control and Prevention said that fully vaccinated people can stop wearing masks and social distancing outdoors and in most indoor settings. Although the new guidelines don’t specifically refer to the cruising industry, they should give potential cruise customers some confidence that things are returning to normal. Moreover, Pfizer’s Covid-19 vaccine received approval for use in children aged 12 to 15 in the U.S. This could also prove positive for the cruising business, as there could be some revival in demand from families.

Now while cruising from the U.S. ports is set to resume this July, we still think that 2021 is likely to be a relatively slow year for Norwegian. Norwegian will likely miss out out on much of the lucrative summer cruising season and it’s also possible that older customers – who are a key demographic – will take a wait and watch approach to cruising post the pandemic. That said, 2022 is looking much stronger, with consensus estimates pointing to revenues of $6 billion, just slightly below the $6.5 billion in revenue the company posted in 2019.

However, shareholder returns remain a concern in the longer-term for Norwegian stock. The company spent the better part of the last year raising funds, with its debt load roughly doubling to $12 billion between December 2020 and the end of March 2020. This should lead to higher interest costs, constraining the company’s long-term profitability. Moreover, shareholders have also been significantly diluted by the company’s equity issuances, with shares outstanding rising to 370 million as of April 2021, up from 213 million in early 2020.

See our analysis on Norwegian Cruise Line Stock Chances Of Rise for more details on the stock’s recent performance and where it could be headed.

[4/6/2021] Norwegian Cruise Line Updates

Norwegian Cruise Line stock (NYSE: NCLH) has rallied by about 11% over the last five trading days, significantly outperforming the S&P 500 which is up by 2.7% over the same period. The recent gains come as the U.S. Centers for Disease Control and Prevention said that fully vaccinated people are likely to see low risk from travel, noting that they would no longer need to undergo Covid-19 testing or quarantines by the CDC for travel within the U.S. Moreover, Norwegian said that it intends to resume cruises from U.S. ports in July, subject to CDC approval, noting that it would require that its guests and crew be fully vaccinated while maintaining other safety and health standards. So is Norwegian stock poised to rally further or is a correction looking imminent? Based on our machine learning engine, which analyzes Norwegian stock’s historical price movements, the stock has a 54% chance of a rise over the next month, after rising by about 11% over the last five trading days. See our analysis on Norwegian Cruise Line Stock Chances Of Rise for more details.

So what’s the longer-term outlook for NCLH stock? Although the opening up of the travel and leisure industry and pent-up demand for cruises bodes well for Norwegian’s revenues, the company is likely to continue burning cash for at least a few more quarters as it ramps up operations and gets its fleet sailing. Longer-term profitability also remains a concern, given potentially higher interest expenses.  The company’s total debt rose to about $11.8 billion at the end of 2020, up from around $6.8 billion at the end of 2019. That said, the stock still remains down by about 50% from its pre-Covid highs, making the risk to reward proposition relatively attractive for investors.

[3/8/2021] Norwegian Cruise Line

Norwegian Cruise Line (NYSE: NCLH), the smallest of the big three cruising companies, saw its stock gain about 22% over the last month, trading at levels of around $29 per share. This outperformed the S&P 500 which remained almost flat over the same period, as investors hope that the company’s ships will be able to set sail in the near future, with Covid-19 cases on the decline in the U.S. and the vaccination drive gaining momentum.  This has helped travel and leisure stocks, as investors expect business to pick up in the coming quarters. However, the stock fell by over 2% over the last week, after the company indicated that it would be raising additional cash via a stock offering. So is Norwegian Cruise Line stock poised to rally further, or could it decline? NCLH stock has a 56% chance of a rise over the next month (21 days) after declining 2.4% in the last five days, based on our machine learning analysis of trends in the stock price over the last five years. See our analysis Norwegian Cruise Line Stock Chances of Rise for more details.

That said, the longer-term outlook for the company remains mixed, in our view. Norwegian announced that it had extended the suspension of voyages through the end of May 2021 and although Covid cases are on the decline, it’s quite likely that activity will remain subdued for the rest of the year even after the company resumes operations. Booking trends have also been mixed, with reservations for the second half of 2021 apparently remaining below historical levels, although early trends for 2022 look strong, per the company. Now, although Norwegian has adequate liquidity (over $3 billion as of the end of December) to fund its cash burn ($190 million per month as of Q4) it’s not clear that the company will be able to generate sufficient returns for shareholders in the long-run due to high interest costs. Norwegian has spent the better part of the last year raising funds via debt and equity issuances, with its debt load standing at about $11.8 billion at the end of Q4, up from about $6.8 billion a year ago. The higher interest costs are likely to weigh on the company’s profitability going forward.

Now while cruise stocks have moved considerably over the last year, 2020 has also created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how the stock valuation for Northrop Grumman vs. Atlas Air Worldwide Holdings shows a disconnect with their relative operational growth. You can find many such discontinuous pairs here.

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