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Here's Why Investors Should Retain Norwegian Cruise (NCLH) Now

Norwegian Cruise Line Holdings Ltd. NCLH is likely to benefit from strong booking activities, occupancy improvement and fleet expansion efforts. This and the focus on onboard revenue generation bode well. However, inflationary pressures pose concerns.

Let us discuss why investors should hold on to the stock for the time being.

Key Catalysts

Improvements in booking activities have been aiding the company. The bookings include incorporating higher pricing and the dilutive impact of future cruise credits (FCCs). During the first quarter of 2023, the company generated solid booking volumes, courtesy of strong demand in the WAVE season. The company stated that the cumulative booked position for 2023 are higher than 2019 levels. Also, it reported strength in advance ticket sales. As of Mar 31, 2023, the company’s advance ticket sales balance came in at $3.4 billion, up 26% (from the previous quarter’s levels) and 60% (from 2019 levels). The company stated pricing levels to be elevated. The company intends to focus on strategic marketing efforts to drive demand and high-value bookings in the upcoming periods.

Norwegian Cruise benefits from improvements in occupancy. In first-quarter 2023, occupancy was approximately 101.5%, exceeding the company’s expectations of approximately 100%. In the previous quarter, the company reported an occupancy of 87%. It anticipates occupancy ramp-up to complete and reach approximately 105% during the second quarter of 2023. Relaxation in COVID-related protocols is likely to add to the positives.

Increased focus on onboard revenue generation bodes well. During the first quarter of 2023, gross onboard revenue per passenger cruise day was nearly 30% higher than 2019 levels. This upside was primarily driven by enhancements with respect to its bundled offerings. The company emphasizes on increasing quality touchpoints with guests (at the time of booking) to capture more revenues and pre-payment prior to cruise. Also, the emphasis on margin enhancement initiatives, such as corporate overhead reductions, itinerary optimization, supply chain initiatives and rationalization of product delivery, bodes well.

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Norwegian Cruise is constantly looking to expand its fleet size to drive growth. It plans to introduce eight more ships through 2028. A majority of them are on order for the Norwegian Cruise Line, while the rest are for Oceania Cruises and Regent Seven Seas Cruises. For the Regent brand, it has one Explorer Class Ship to be delivered in 2023. For the Oceania Cruises brand, the company has one Allura Class Ships to be delivered in 2025. For the Norwegian brand, the company has five Prima Class Ships on order, with scheduled delivery dates from 2023 through 2028. The company anticipates the additions to increase the birth count to approximately 82,000.

Concerns

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

In the past three months, shares of the company have declined 12.3% compared with the industry’s fall of 1%. The company’s operations are likely to be influenced by the downstream effects of the COVID-19 pandemic and uncertainty related to the Russian invasion of Ukraine. Also, volatility in inflation, rising fuel prices and rising interest rates added to the downside. The company is cautious about the ongoing uncertain macroeconomic environment.

Norwegian Cruise has been bearing the brunt of high expenses for quite some time. During the first quarter of 2023, total cruise operating expenses came in at $1,280.4 million compared with $735.4 million reported in the year-ago quarter. The company’s expenses in the quarter stemmed from the resumption of cruise voyages and inflationary pressures. The company reported a rise in payroll, fuel and direct variable costs of fully-operating ships. Also, inflationary pressures relating to food, perishables and logistics added to the woes. The company anticipates inflation and global supply chain constraints to dent margins in the near term.

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 MGM Resorts International MGM, Bluegreen Vacations Holding Corporation BVH and Crocs, Inc. CROX.

MGM Resorts sports a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 81%, on average. The stock has increased 14.6% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for MGM’s 2024 sales and EPS indicates a rise of 1.4% and 22.3%, respectively, from the year-ago period’s estimated levels.  

Bluegreen Vacations sports a Zacks Rank #1. BVH has a trailing four-quarter earnings surprise of 24.7%, on average. Shares of the company have increased 7.7% in the past year.  

The Zacks Consensus Estimate for BVH’s 2023 sales and EPS indicates a rise of 3.6% and 17.6%, respectively, from the year-ago levels.  

Crocs carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 19.6%, on average. Shares of Crocs have increased 85.8% in the past year.

The Zacks Consensus Estimate for CROX’s 2023 sales and EPS indicates a rise of 13.2% and 5.7%, respectively, from the year-ago period’s levels.

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MGM Resorts International (MGM) : Free Stock Analysis Report

Crocs, Inc. (CROX) : Free Stock Analysis Report

Norwegian Cruise Line Holdings Ltd. (NCLH) : Free Stock Analysis Report

Bluegreen Vacations Holding Corporation (BVH) : Free Stock Analysis Report

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