Global cruise company Norwegian Cruise Line Holdings Ltd. (NCLH) operates the Norwegian Cruise Line, Oceania Cruises, and Regent Seven Seas Cruises brands. It offers itineraries ranging from three days to 180-days calling on various locations across the globe.

The coronavirus pandemic had severely impacted the cruise industry. However, it has made a strong comeback over the past few months as international travel resumed.

NCLH’s stock has gained 16.8% in price over the past three months while it has declined 34.7% year-to-date and 50.3% over the past year to close the last trading session at $13.55. It is currently trading 54% below its 52-week high of $29.45, which it hit on November 5, 2021.

The rising interest rate environment has hit the cruise ship industry. High rates have led to declining travel demand, with consumers lowering their discretionary spending. Moreover, rising interest rates have severely affected several cruise shipping companies, which had taken huge debts during the pandemic to keep their operations running.

On August 19, 2022, NCLH’s subsidiary Oceania Cruises’ CEO Howard Sherman filed a Form 4 with the SEC disclosing the sale of 86,225 shares of NCLH at an average price of $13.63, raising about $1.20 million in capital.

The company’s current cumulative booked position for the second half of 2022 remains below the comparable 2019 period. The company’s total debt of $13.20 billion as of June 30, 2022, was significantly higher than its liquidity of about $2.90 billion, which includes cash and cash equivalents and undrawn commitment.

The company expects to post a net loss despite an expected occupancy of 80% in the ongoing quarter.

NCLH failed to surpass the consensus EPS and revenue estimates in the last reported quarter. Its EPS came 36.7% below analyst estimates, while the revenue missed estimates by 4.8%. It has failed to surpass Street EPS estimates in each of the trailing four quarters.

Here’s what could influence the performance of NCLH in the upcoming months:

Mixed Financials

NCLH’s total revenue increased significantly to $1.18 billion for the second quarter ended June 30, 2022. Its total cruise operating expense increased 329.8% year-over-year to $1.07 billion.

The company’s operating loss narrowed 34.4% year-over-year to $396.80 million. Also, its net loss narrowed 29% year-over-year to $509.32 million. In addition, its loss per share narrowed 37.1% year-over-year to $1.22.

Mixed Analyst Estimates

Analysts expect NCLH’s EPS for fiscal 2022 to remain negative, and its EPS for fiscal 2023 is expected to increase 128.4% year-over-year to $1.24. Its revenue for fiscal 2022 and 2023 is expected to increase 632.9% and 70% year-over-year to $4.75 billion and $8.07 billion.

Stretched Valuation

In terms of forward EV/S, NCLH’s 3.75x is 264.1% higher than the 1.03x industry average. Likewise, its 1.20x forward P/S is 55.3% higher than the 0.78x industry average. And the stock’s 8.43x forward P/B is 264% higher than the 2.32x industry average.

Lower-than-industry Profitability

NCLH’s trailing-12-month net income margin is negative compared to the 5.86% industry average. Likewise, its trailing-12-month levered FCF margin is negative compared to the 1.80% industry average. Furthermore, the stock’s 0.12% trailing-12-month asset turnover ratio is 88% lower than the industry average of 1.03%.

POWR Ratings Reflect Bleak Prospects

NCLH has an overall F rating, equating to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. NCLH has a D grade for Value, consistent with its stretched valuation.

It has a D grade for Quality, in sync with its lower-than-industry profitability. It has a beta of 2.40, justifying its F grade for Stability.

NCLH is ranked last out of 4 stocks in the F-rated Travel – Cruises industry. Click here to access NCLH’s ratings for Growth, Momentum, and Sentiment.

Bottom Line

NCLH is trading below its 10-day and 200-day moving averages of $14.77 and $17.20, indicating a downtrend. The Fed’s aggressive monetary policy stance is expected to affect cruise operators negatively. Despite the predicted rise in occupancy, NCLH is expected to post a net loss due to the uncertain macroeconomic environment and the effects of the continuing Ukraine–Russia conflict.

Given its stretched valuation and lower-than-industry profitability, it could be wise to avoid the stock now.

NCLH shares were unchanged in premarket trading Monday. Year-to-date, NCLH has declined -35.10%, versus a -21.99% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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