Norwegian Cruise Line Holdings Ltd. (NCLH) is a leading global cruise company, which operates the Norwegian Cruise Line, Oceania Cruises, and Regent Seven Seas Cruises brands. With a combined fleet of 28 ships and approximately 59,150 berths, these brands offer itineraries to more than 490 destinations worldwide. Moreover, the company plans to introduce nine additional ships through 2027.

NCLH is one of the worst-hit cruise stocks of 2020, with income consistently declining over the past two quarters because of the pandemic. In the second quarter that ended June 2020, revenue decreased to $16.9 million, compared to $1.7 billion in the comparable quarter last year, due to the complete suspension of voyages. NCLH reported a loss of $2.99 per share, compared to the year-ago EPS of $1.11.

At the end of the quarter, the company had $1.2 billion of advanced ticket sales, including the long-term portion, which includes approximately $0.8 billion of future cruise credits. The company continues to take future bookings and receive new customer deposits and final payments on these bookings.

However, with travel restrictions amid the rising coronavirus cases, the company is struggling to sail. The quarterly performance and the potential downside based on a number of factors have made our proprietary system to rate NCLH as a “Sell.”

Here is how our proprietary POWR Ratings system evaluates NCLH:

Trade Grade: C

NCLH is currently trading higher than its 50-day moving average of $16.41 but below its 200-day moving average of $23.94, indicating that the stock is neither in an uptrend nor in a downtrend. However, the stock’s 2.3% loss over the past three months reflects a short-term bearishness.

NCLH suspended its global cruise operation in March, and has recently deferred the sails to at least November 30, which is a month beyond the “No Sail” order from the Centers for Disease Control and Prevention (CDC). However, with concessions made about new health and safety measures, this order banning cruise ship sailings till the end of October could be the last and NCLH may lose another month’s business.

Buy & Hold Grade: F

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade takes into account, NCLH is positioned unfavorably. The stock is currently trading 69.8% below its 52-week high of $59.78.

Looking at the past three years, the stock has lost nearly 69% due to its impaired earnings, and change in consumer and business behavior. NCLH’s EBITDA has declined at a CAGR of 24.3% during the same period.

NCLH also has the least confident customer base. The company witnessed up to 60% of its passengers on cancelled sailings asking for a cash refund instead of opting for future cruise credits.

Peer Grade: B

NCLH is currently rated #2 out of 5 stocks in the Travel – Cruises industry. Other popular stocks in the group are Royal Caribbean Cruises Ltd. (RCL), Carnival Corporation & Plc (CCL) and Carnival Plc (CUK). NCLH is down 69.1% year-to-date. The sector has been heavily bleeding as RCL, CCL and CUK have also lost 47.2%, 69.7% and 72.4%, respectively, over this period.

Industry Rank: F

The StockNews.com Travel – Cruises industry is ranked #108 out of the 123 industries. The companies in this industry operate deep sea cruise ships and inland/coastal cruise ships. Demand for cruises is driven by vacation preferences, and the industry has not been performing well amid the health crisis due to safety concerns. However, the industry is expected to roar back once there is a vaccine against the virus.

Overall POWR Rating: D (Sell)

Overall, NCLH is rated a “Sell” due to its declining business, lack of customer confidence, long-term bearishness, and weak price momentum, as determined by the four components of our overall POWR Rating.

Bottom Line

One trend that has emerged recently are cruise lines beginning to sell ships in order to drum up any kind of cash flow, but NCLH absolutely has no plans to divest of any of its vessels despite being a relatively smaller firm compared to its peers. The business is still sitting on massive liabilities despite having completed the follow-on public offering of its common stock.

Now the Healthy Sail Panel recommends 74 detailed steps to safeguard the health of guests, crew and communities. Consequently, NCLH has to additionally invest in refitting ships to shift to touchless travel and improve cleaning standards, along with working with health experts on developing testing capabilities.

Analyst sentiment, which gives a good sense of a stock’s future price movement, is not favorable for NCLH. The market expects revenues for the third quarter that ended September 2020 to decline 99.4% year-over-year. The consensus EPS estimate for the ongoing year indicates a 261% fall from the year-ago value. This outlook should keep NCLH’s price momentum weak if the company doesn’t witness fresh advance bookings in the near term.

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NCLH shares were trading at $16.82 per share on Tuesday afternoon, down $1.26 (-6.97%). Year-to-date, NCLH has declined -71.20%, versus a 10.53% rise in the benchmark S&P 500 index during the same period.

About the Author: Sidharath Gupta

Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...

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