Bear of the Day: Norwegian Cruise Line (NCLH)

I last wrote about Norwegian Cruise Line Holdings (NCLH) as the Bear of the Day in September after earnings had plunged 263% from 2019’s $5.09 to ($8.30).

The operator of three brands, including Oceania Cruises and Regent Seven Seas Cruises, recently celebrated some good news as the CDC issued conditional sailing orders for cruise lines on October 30.

In last Friday’s session, Norwegian and peers Carnival (CCL) and Royal Caribbean (RCL) were all up between 6% and 9% following the CDC’s release of its guidance.

Reaction from analysts was positive after a devastating year for this particular leisure business.

Stifel Nicolaus analyst Steven Wieczynski said that the CDC’s lifting of its “no sail order” was a “clear positive” for the group, all of which are Buy-rated at the firm. The analyst noted that given how smoothly cruise operations have resumed in Europe, he believes the cruise industry had been trying to show U.S. government officials that restarting operations in North American could be done in a safe and confined manner.

Wieczynski also shares the belief of analysts that we should expect to see the major cruise operators start up “test” cruises in December and January and eventually have revenue cruises operational by the middle of the first quarter of 2021.

But this doesn’t mean that revenue and EPS estimates will start moving up meaningfully right away.

In fact, yesterday (Monday Nov 2), Norwegian Cruise Line confirmed how slow the re-start might be by extending voyage suspension through December 31. The travel company announced an extension of its previously announced suspension of global cruise voyages to include all voyages embarking between December 1 through December 31, 2020 for its three cruise brands.

UBS analyst Robyn Farley is even less optimistic about how quickly normal cruising resumes from US ports. The analyst notes that lab testing, simulated voyages, risk mitigation and certifications will all have to roll out before CDC approvals are set:

“Bottom line is that cruise lines will not be able to offer passenger cruises in December, but January seems possible, though February more likely, in line with what the CDC was reportedly already targeting. That leaves downside risk to our Q1 estimates, which had assumed 7% of cruise capacity in use, but wouldn’t have as much negative impact on our 2H estimates. Overall, our 2021 ests assume about 30% of cruise capacity in service for the year on average, so some downside risk to that from 1H adjustments but a Feb restart would at least give higher conviction in 2H and forward. We continue to favor RCL over CCL and NCLH because RCL’s private island strategy should give it an advantage when US cruising restarts with short Carib cruises.”

Bottom line on NCLH: There is probably long-term value in the shares right now, but there should be no rush to enter a position. Best to wait for the estimates to stop going down and start heading back toward zero from negative growth. The Zacks Rank will let you know.

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