Buy Norwegian Stock Because It Could Be Best-Positioned for a Return to Seas


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Norwegian Cruise Line’s older customer mix and focus on luxury cruises should have it well positioned to launch vaccine-only voyages and capitalize on pent-up demand, says one analyst. Here, Norwegian’s Sun cruise ship is docked at the Port of Jacksonville, Fla.


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A Wall Street analyst has upgraded

Norwegian Cruise Line Holdings

to Buy, partly because its customer mix should allow it to launch vaccine-only cruises.

Shares of Norwegian (ticker: NCLH) were at around $28.70 Wednesday morning, up around 7%. As of Tuesday’s close, the stock had gained about 5% this year.

In a note Tuesday,

Goldman Sachs

analyst Stephen Grambling wrote that “the bottom-line is NCLH is poised to see fundamentals inflect once sailings resume, with pent-up leisure demand driving a recovery in net yields beyond pre-pandemic levels at the same time that net cruise costs ex-fuel will be slower to bounce back.”

Yields are essentially a measure of how much revenue a cruise operator generates per unit sold, in this case a berth. With its focus more on upscale and luxury brands, Norwegian has traditionally had the highest yields among its peers.

Grambling added that Norwegian, with its smaller fleet, greater focus on North American customers and more limited passengers under 16 years of age, has “greater flexibility to adjust to [Centers for Disease Control and Prevention] guidelines and/or begin ‘vaccine only’ sailings.”

Besides raising his rating on Norwegian from Neutral to Buy, Grambling boosted his price target to $37 from $27.

He points out in his note that Norwegian has “industry leading capacity growth” and “the longest liquidity runway with the lowest leverage on fully recovered [earnings before interest, taxes, depreciation and amortization.”

It remains to be seen, however, when Norwegian and its two larger peers—

Carnival

(CCL) and

Royal Caribbean Group

(RCL)—can resume sailings out of U.S. ports, which have been shut down since March of 2020 due to the pandemic.

The CDC recently upgraded its conditional sailing order but did not specify a date when sailings could resume, much to the dismay of the industry. Norwegian CEO Frank Del Rio has called on the CDC to allow the Miami-based company to resume U.S. sailings around July 4.

The Florida attorney general recently sued the CDC to resume sailings.

Goldman Sachs, meanwhile, has Carnival and Royal Caribbean at Neutral ratings. However, it did raise its price targets on both stocks—Carnival to $26 from $21 and Royal Caribbean to $95 from $76. Carnival was at around $26.60 on Wednesday morning, and Royal Caribbean was at around $83.

Grambling lowered his earnings estimates for Norwegian in 2022 to $1.17 a share from $2.07 previously. But he expects earnings to rise to $3.13 a share in 2023.

All of the cruise companies suffered big losses in 2020 as their fleets mostly sat idle, causing them to burn through hundreds of millions of cash every month and to raise billions of dollars of new capital.

Write to Lawrence C. Strauss at lawrence.strauss@barrons.com