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Is Norwegian Cruise's Low P/E Signal a Smart Investment or Risky Play?
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Norwegian Cruise Line Holdings Ltd. (NCLH - Free Report) stock is currently trading at a notable discount relative to the Zacks Leisure and Recreation Services industry. With a forward 12-month Price/Earnings ratio of 11.05x, it sits well below the industry average of 17.55x and the Consumer Discretionary sector’s 18.11x.
In the past month, NCLH stock surged 13.1%, outpacing the industry’s 11.9% growth and the S&P 500’s 3.4% gain. The company also outperformed other industry players like Royal Caribbean Cruises Ltd. (RCL - Free Report) , Carnival Corporation & plc (CCL - Free Report) and OneSpaWorld Holdings Limited (OSW - Free Report) , whose shares have risen 8.5%, 10.3% and 6.1%, respectively, in the same time frame.
Stock Price Performance
Image Source: Zacks Investment Research
Technical indicators suggest continued strong performance for NCLH. The stock trades above its 50-day moving averages, signaling robust upward momentum and price stability. This technical strength underscores positive market sentiment and confidence in NCLH's financial health and prospects.
50-Day Moving Averages
Image Source: Zacks Investment Research
Robust Demand Aids NCLH
The company is benefiting from strong pricing and booking volumes, with record-breaking advance ticket sales. Its twelve-month forward book position remains strong, which provides confidence in its ability to continue generating strong revenues.
The company is experiencing strong bookings for European, Caribbean and Alaskan sailings. It is also benefiting from stronger-than-expected onboard revenues and last-minute bookings. Guests' continued interest in shore excursions and amenities, including specialty restaurants and communication services, enhanced by the ongoing implementation of Starlink across the fleet, bodes well.
For third-quarter 2024, NCLH anticipates occupancy and Capacity Days to be 108.2% and 6.04 million, respectively. For 2024, the company anticipates occupancy to be 105.2% and Capacity Days to be 23.47 million.
NCLH Thrives on Capacity Expansion
The company’s steady growth in capacity has often aided revenues and EBITDA. NCLH plans to continue this trend by adding larger and more efficient vessels to its fleet. Two new ships, Norwegian Aqua and Oceania's Allura, are set to be delivered in 2025, featuring innovative offerings that improve guest experiences.
The company also has four Prima Class Ships (including two Next Generation “Methanol-Ready” ships) on order with scheduled delivery dates from 2025 through 2028. This addition is likely to bring the total berth count to nearly 82,000. The company expects to introduce 13 new ships under three new classes from 2025 through 2036. This includes four Oceania Cruises ships with deliveries planned from 2027 through 2031 and two Prestige Class Ships scheduled for 2026 and 2029.
On the other hand, through its Sail and Sustain program, NCLH is making significant progress in environmental sustainability, including equipping its fleet with shore power technology and testing biodiesel blends. These efforts position the company as a leader in sustainable cruising.
Enhanced Itinerary and Home Ports
NCLH is not only focusing on adding more capacity and features to its existing ships but also enhancing its destination and home ports. The company is expanding its destination offerings, including Bermuda and Great Stirrup Cay and adding new home ports in Jacksonville, Florida and Philadelphia. This enhances its deployment strategy, catering to high-demand regions and increasing guest satisfaction. NCLH will also be returning to Philadelphia in April 2026, marking its first presence there in 17 years.
Rate Cut to Help NCLH
In its latest policy meeting, the Federal Reserve reduced interest rates by 50 basis points to stimulate the economy and support the labor market. The Fed has kept the key interest rates at 4.75-5% and eased its monetary policy for the first time in four years. According to the Fed's Summary of Economic Projections, officials anticipate another half-point rate cut later this year, with additional cuts expected in 2025 and 2026.
A potential rate cut by the Federal Reserve could provide several benefits to Norwegian Cruise. Lower interest rates often result in cheaper borrowing costs, which could be particularly advantageous for NCLH, as the company carries significant debt due to its investments in new ships and infrastructure. By reducing its interest expenses, NCLH would have more flexibility in managing its finances and reinvesting in operations.
How Consensus Estimates Stack Up for NCLH
Reflecting the positive sentiment around Norwegian Cruise, the Zacks Consensus Estimate for earnings per share has seen upward revisions. In the past 60 days, analysts have increased their estimates for the current and next year by 7.5% and 5.6%, respectively, to $1.58 and $1.89, implying year-over-year growth rates of 125.7% and 19.5%.
Image Source: Zacks Investment Research
End Notes
Norwegian Cruise presents a compelling buying opportunity due to its sound fundamentals and trading at a significant discount compared with its industry peers. The company is benefiting from robust demand, driven by strong pricing, record bookings and higher onboard spending. With plans to expand its fleet with innovative, sustainable ships and enhance its itineraries and home ports, the Zacks Rank #1 (Strong Buy) company is well-positioned for continued growth.
A Federal Reserve rate cut could further reduce NCLH's borrowing costs, allowing for more financial flexibility as it invests in future operations. This positive outlook is reflected in rising consensus earnings estimates, signaling strong confidence in the company’s long-term prospects.
Image: Bigstock
Is Norwegian Cruise's Low P/E Signal a Smart Investment or Risky Play?
Norwegian Cruise Line Holdings Ltd. (NCLH - Free Report) stock is currently trading at a notable discount relative to the Zacks Leisure and Recreation Services industry. With a forward 12-month Price/Earnings ratio of 11.05x, it sits well below the industry average of 17.55x and the Consumer Discretionary sector’s 18.11x.
In the past month, NCLH stock surged 13.1%, outpacing the industry’s 11.9% growth and the S&P 500’s 3.4% gain. The company also outperformed other industry players like Royal Caribbean Cruises Ltd. (RCL - Free Report) , Carnival Corporation & plc (CCL - Free Report) and OneSpaWorld Holdings Limited (OSW - Free Report) , whose shares have risen 8.5%, 10.3% and 6.1%, respectively, in the same time frame.
Stock Price Performance
Image Source: Zacks Investment Research
Technical indicators suggest continued strong performance for NCLH. The stock trades above its 50-day moving averages, signaling robust upward momentum and price stability. This technical strength underscores positive market sentiment and confidence in NCLH's financial health and prospects.
50-Day Moving Averages
Image Source: Zacks Investment Research
Robust Demand Aids NCLH
The company is benefiting from strong pricing and booking volumes, with record-breaking advance ticket sales. Its twelve-month forward book position remains strong, which provides confidence in its ability to continue generating strong revenues.
The company is experiencing strong bookings for European, Caribbean and Alaskan sailings. It is also benefiting from stronger-than-expected onboard revenues and last-minute bookings. Guests' continued interest in shore excursions and amenities, including specialty restaurants and communication services, enhanced by the ongoing implementation of Starlink across the fleet, bodes well.
For third-quarter 2024, NCLH anticipates occupancy and Capacity Days to be 108.2% and 6.04 million, respectively. For 2024, the company anticipates occupancy to be 105.2% and Capacity Days to be 23.47 million.
NCLH Thrives on Capacity Expansion
The company’s steady growth in capacity has often aided revenues and EBITDA. NCLH plans to continue this trend by adding larger and more efficient vessels to its fleet. Two new ships, Norwegian Aqua and Oceania's Allura, are set to be delivered in 2025, featuring innovative offerings that improve guest experiences.
The company also has four Prima Class Ships (including two Next Generation “Methanol-Ready” ships) on order with scheduled delivery dates from 2025 through 2028. This addition is likely to bring the total berth count to nearly 82,000. The company expects to introduce 13 new ships under three new classes from 2025 through 2036. This includes four Oceania Cruises ships with deliveries planned from 2027 through 2031 and two Prestige Class Ships scheduled for 2026 and 2029.
On the other hand, through its Sail and Sustain program, NCLH is making significant progress in environmental sustainability, including equipping its fleet with shore power technology and testing biodiesel blends. These efforts position the company as a leader in sustainable cruising.
Enhanced Itinerary and Home Ports
NCLH is not only focusing on adding more capacity and features to its existing ships but also enhancing its destination and home ports. The company is expanding its destination offerings, including Bermuda and Great Stirrup Cay and adding new home ports in Jacksonville, Florida and Philadelphia. This enhances its deployment strategy, catering to high-demand regions and increasing guest satisfaction. NCLH will also be returning to Philadelphia in April 2026, marking its first presence there in 17 years.
Rate Cut to Help NCLH
In its latest policy meeting, the Federal Reserve reduced interest rates by 50 basis points to stimulate the economy and support the labor market. The Fed has kept the key interest rates at 4.75-5% and eased its monetary policy for the first time in four years. According to the Fed's Summary of Economic Projections, officials anticipate another half-point rate cut later this year, with additional cuts expected in 2025 and 2026.
A potential rate cut by the Federal Reserve could provide several benefits to Norwegian Cruise. Lower interest rates often result in cheaper borrowing costs, which could be particularly advantageous for NCLH, as the company carries significant debt due to its investments in new ships and infrastructure. By reducing its interest expenses, NCLH would have more flexibility in managing its finances and reinvesting in operations.
How Consensus Estimates Stack Up for NCLH
Reflecting the positive sentiment around Norwegian Cruise, the Zacks Consensus Estimate for earnings per share has seen upward revisions. In the past 60 days, analysts have increased their estimates for the current and next year by 7.5% and 5.6%, respectively, to $1.58 and $1.89, implying year-over-year growth rates of 125.7% and 19.5%.
Image Source: Zacks Investment Research
End Notes
Norwegian Cruise presents a compelling buying opportunity due to its sound fundamentals and trading at a significant discount compared with its industry peers. The company is benefiting from robust demand, driven by strong pricing, record bookings and higher onboard spending. With plans to expand its fleet with innovative, sustainable ships and enhance its itineraries and home ports, the Zacks Rank #1 (Strong Buy) company is well-positioned for continued growth.
A Federal Reserve rate cut could further reduce NCLH's borrowing costs, allowing for more financial flexibility as it invests in future operations. This positive outlook is reflected in rising consensus earnings estimates, signaling strong confidence in the company’s long-term prospects.
You can see the complete list of today’s Zacks #1 Rank stocks here.