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Here's Why Investors Should Retain Norwegian Cruise (NCLH) Now
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Norwegian Cruise Line Holdings Ltd. (NCLH - Free Report) will likely benefit from higher demand and pricing, digital initiatives and fleet expansion efforts. This and strength in pre-cruise packages bode well. However, geopolitical uncertainties and high costs are a headwind.
Let us discuss why investors should hold on to the stock for now.
Key Catalysts
Improvements in booking activities have been aiding the company. During the first quarter, the company witnessed strong and resilient consumer demand, leading to record bookings and a sustained position extending into 2025. Despite itinerary cancellations and reroutings in the Middle East and the Red Sea, demand remains healthy across all regions, notably in Europe and Alaska. As of Mar 31, 2024, the company's advance ticket sales balance reached a record high of $3.8 billion, up around 13% year over year. The upside was driven by robust pricing, capacity growth, a dynamic deployment mix and enhanced pre-sold onboard revenue.
Onboard revenues continue to thrive, indicating the resilience of the company's consumer base, with a notable 16% increase in pre-cruise purchases compared with the previous year’s levels. This underscores the company's ability to absorb significant demand from pre-cruise purchases, leading to higher overall spending throughout a guest's cruise experience. The company is optimistic about its strong booking position for the next 12 months, characterized by increased pricing and robust yield growth.
Increased focus on digital initiatives bodes well. The company created a simplified booking process that employs generative AI technology to personalize the experience for visitors. The initiative paves a path for optimization in pricing and marketing approaches. NCLH is optimistic concerning the strategies and anticipates it to increase yields, guest satisfaction and guest repeat rates.
The company emphasizes fleet expansion to drive the top line. During the first quarter, the company announced a groundbreaking new build order. The order comprises eight new ships spanning all three brands. Additionally, plans were unveiled for the construction of a two-ship pier at Great Stirrup Cay, aimed at enhancing the existing infrastructure on the private island.
During the quarter, the company reported growth in the newbuild pipeline, expanding from five to 13 ships. This expansion reflects a compound annual growth rate (CAGR) of 6% from 2023 to 2028 and 4% from 2023 to 2036 in terms of capacity. Historical data indicates that increases in capacity have historically led to notable growth in revenue and adjusted EBITDA. This trend is anticipated to continue as the company integrates larger and more advanced vessels into its fleet.
Concerns
Image Source: Zacks Investment Research
In the past three months, shares of the company have declined 2.3% against the industry’s growth of 7.4%. Cancellations and redeployment of itineraries in the Middle East and the Red Sea primarily drove the downside.
Norwegian Cruise has been bearing the brunt of high expenses for quite some time now. During first-quarter 2024, total cruise operating expenses were $1.39 billion, up from $1.28 billion reported in the year-ago quarter. The company reported a rise in payroll, fuel and Commissions, transportation, onboard and other expenses. The company anticipates inflation and global supply chain constraints to put pressure on margins in the near term. Also, it is cautious of increased expenses in terms of fuel and capacity additions.
Zacks Rank & Stocks to Consider
Norwegian Cruise currently carries a Zacks Rank #3 (Hold).
STRA has a trailing four-quarter earnings surprise of 36.2%, on average. The stock has surged 53.1% in the past year. The Zacks Consensus Estimate for STRA’s 2024 sales and earnings per share (EPS) indicates an increase of 6.4% and 33.3%, respectively, from the year-ago levels.
Royal Caribbean Cruises Ltd. (RCL - Free Report) currently sports a Zacks Rank of 1. RCL has a trailing four-quarter earnings surprise of 18.3%, on average. The stock has rallied 78.3% in the past year.
The Zacks Consensus Estimate for RCL’s 2024 sales and EPS calls for growth of 16.6% and 61.9%, respectively, from the year-ago levels.
Hasbro, Inc. (HAS - Free Report) presently sports a Zacks Rank of 1. The company has a trailing four-quarter earnings surprise of 17.5%, on average. The stock has gained 16.5% in the year-to-date period.
The Zacks Consensus Estimate for HAS’ 2025 sales and EPS suggests an improvement of 4% and 14.4 %, respectively, from the year-ago levels.
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Here's Why Investors Should Retain Norwegian Cruise (NCLH) Now
Norwegian Cruise Line Holdings Ltd. (NCLH - Free Report) will likely benefit from higher demand and pricing, digital initiatives and fleet expansion efforts. This and strength in pre-cruise packages bode well. However, geopolitical uncertainties and high costs are a headwind.
Let us discuss why investors should hold on to the stock for now.
Key Catalysts
Improvements in booking activities have been aiding the company. During the first quarter, the company witnessed strong and resilient consumer demand, leading to record bookings and a sustained position extending into 2025. Despite itinerary cancellations and reroutings in the Middle East and the Red Sea, demand remains healthy across all regions, notably in Europe and Alaska. As of Mar 31, 2024, the company's advance ticket sales balance reached a record high of $3.8 billion, up around 13% year over year. The upside was driven by robust pricing, capacity growth, a dynamic deployment mix and enhanced pre-sold onboard revenue.
Onboard revenues continue to thrive, indicating the resilience of the company's consumer base, with a notable 16% increase in pre-cruise purchases compared with the previous year’s levels. This underscores the company's ability to absorb significant demand from pre-cruise purchases, leading to higher overall spending throughout a guest's cruise experience. The company is optimistic about its strong booking position for the next 12 months, characterized by increased pricing and robust yield growth.
Increased focus on digital initiatives bodes well. The company created a simplified booking process that employs generative AI technology to personalize the experience for visitors. The initiative paves a path for optimization in pricing and marketing approaches. NCLH is optimistic concerning the strategies and anticipates it to increase yields, guest satisfaction and guest repeat rates.
The company emphasizes fleet expansion to drive the top line. During the first quarter, the company announced a groundbreaking new build order. The order comprises eight new ships spanning all three brands. Additionally, plans were unveiled for the construction of a two-ship pier at Great Stirrup Cay, aimed at enhancing the existing infrastructure on the private island.
During the quarter, the company reported growth in the newbuild pipeline, expanding from five to 13 ships. This expansion reflects a compound annual growth rate (CAGR) of 6% from 2023 to 2028 and 4% from 2023 to 2036 in terms of capacity. Historical data indicates that increases in capacity have historically led to notable growth in revenue and adjusted EBITDA. This trend is anticipated to continue as the company integrates larger and more advanced vessels into its fleet.
Concerns
Image Source: Zacks Investment Research
In the past three months, shares of the company have declined 2.3% against the industry’s growth of 7.4%. Cancellations and redeployment of itineraries in the Middle East and the Red Sea primarily drove the downside.
Norwegian Cruise has been bearing the brunt of high expenses for quite some time now. During first-quarter 2024, total cruise operating expenses were $1.39 billion, up from $1.28 billion reported in the year-ago quarter. The company reported a rise in payroll, fuel and Commissions, transportation, onboard and other expenses. The company anticipates inflation and global supply chain constraints to put pressure on margins in the near term. Also, it is cautious of increased expenses in terms of fuel and capacity additions.
Zacks Rank & Stocks to Consider
Norwegian Cruise currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Consumer Discretionary sector are:
Strategic Education, Inc. (STRA - Free Report) currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.
STRA has a trailing four-quarter earnings surprise of 36.2%, on average. The stock has surged 53.1% in the past year. The Zacks Consensus Estimate for STRA’s 2024 sales and earnings per share (EPS) indicates an increase of 6.4% and 33.3%, respectively, from the year-ago levels.
Royal Caribbean Cruises Ltd. (RCL - Free Report) currently sports a Zacks Rank of 1. RCL has a trailing four-quarter earnings surprise of 18.3%, on average. The stock has rallied 78.3% in the past year.
The Zacks Consensus Estimate for RCL’s 2024 sales and EPS calls for growth of 16.6% and 61.9%, respectively, from the year-ago levels.
Hasbro, Inc. (HAS - Free Report) presently sports a Zacks Rank of 1. The company has a trailing four-quarter earnings surprise of 17.5%, on average. The stock has gained 16.5% in the year-to-date period.
The Zacks Consensus Estimate for HAS’ 2025 sales and EPS suggests an improvement of 4% and 14.4 %, respectively, from the year-ago levels.