Norwegian Cruise Line Holdings Ltd. NCLH is likely to benefit from improving occupancy, relaxation in COVID-related protocols and fleet expansion efforts. This and the increased focus on booking window bode well. In the past three months, shares of the company have gained 5.9% against the industry’s fall of 1.4%. However, inflationary pressures and geopolitical tensions pose concerns.
Let us discuss why investors should hold on to the stock for the time being.
Norwegian Cruise is benefitting from improvements in occupancy. In third-quarter 2022, occupancy was approximately 82%, in line with the company’s expectations. In the previous quarter, the company had reported occupancy of 65%. For the fourth quarter of 2022, the company expects occupancy to be in the mid-to-high 80% range. Although seasonality-induced headwinds are likely to persist during the fourth quarter, the company anticipates sequential improvements in load factor, with sequential gap reduction (of about 20%) from 2019 levels. The company anticipates occupancy ramp-up to continue and reach historical levels (of 100% plus) during the second quarter of 2023. Relaxation in COVID-related protocols is likely to add to the positives.
Norwegian Cruise is constantly looking to expand its fleet size to drive growth. It has plans to introduce eight more ships through 2027. Most 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 two Allura Class Ships to be delivered in 2023 and 2025. With the project Leonardo, Norwegian Cruise will have an additional six ships with expected delivery dates from 2022 through 2027. In 2023, the company anticipates the additions of Norwegian Viva, Oceania Cruises Vista and Regent Seven Seas Grandeur to its fleet.
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Sequential improvements in booking activities have been aiding the company. The bookings include incorporating higher pricing and the dilutive impact of future cruise credits (FCCs). As of Sep 30, 2022, the company’s advance ticket sales (including the long-term portion) were $2.5 billion compared with $2.2 billion reported in the previous quarter. The amount includes FCCs worth approximately $258 million. Although the cumulative booked position for the fourth quarter of 2022 is below the comparable 2019 levels, the company stated that booking trends for 2023 remain in line with the record of 2019. Pricing is also higher than 2019 levels at the same point in time for the full year 2023. The company intends to focus on strategic marketing efforts to drive demand and high-value bookings in the upcoming periods.
The company emphasizes on its booking window to drive top-line. The initiative not only evaluates the extent and willingness of consumers to spend on cruise travel but also provides better visibility for price increases and moderating marketing expenses. During the third quarter of 2022, the booking window was approximately 245 days, nearly 10% ahead of 2019 levels. The company anticipates the indicator to be a driving factor of sales in the upcoming periods.
The company’s operations are likely to be influenced by the uncertainty related to the Russian invasion of Ukraine. Also, geopolitical developments have pushed fuel curves higher. Due to the war, the management has decided to withdraw all activity in Russia. During the third quarter of 2022, the company’s performance was negatively impacted by the absence of premium-priced Baltic itineraries. Also, it stated that the impacts of COVID-19 (on the shipyards), Russia’s ongoing invasion of Ukraine and other macroeconomic events, have resulted in some delays in expected ship deliveries. The company anticipates the close-end nature of the deployment change and its inability to find alternatives for the itineraries to disrupt booking patterns for some time.
Norwegian Cruise has been bearing the brunt of high expenses for quite some time. During the third quarter of 2022, total cruise operating expenses increased 181.7% year over year to $ 1,238.9 million. The company’s expenses in the quarter primarily stemmed from the resumption of cruise voyages. The company noted that the increase in 2022 reflects an improvement 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). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the Zacks Consumer Discretionary sector are Monarch Casino & Resort, Inc. MCRI, Hyatt Hotels Corporation H and Crocs, Inc. CROX.
Monarch Casino sports a Zacks Rank #1. MCRI has a trailing four-quarter earnings surprise of 9.1%, on average. The stock has gained 17.3% in the past year.
The Zacks Consensus Estimate for MCRI’s 2022 sales and earnings per share (EPS) indicates growth of 21.1% and 29.2%, respectively, from the year-ago period’s reported levels.
Hyatt currently has a Zacks Rank #2. H has a trailing four-quarter earnings surprise of 652.3%, on average. The stock has increased 11.3% in the past year.
The Zacks Consensus Estimate for H’s current financial year sales and EPS indicates a surge of 92.2% and 121%, respectively, from the year-ago period’s reported levels.
Crocs currently has a Zacks Rank #2. CROX has a long-term earnings growth rate of 15%. Shares of Crocs have plunged 40.1% in the past year.
The Zacks Consensus Estimate for CROX’s 2022 sales and EPS indicates a rise of 51.5% and 23.7%, respectively, from the year-ago period’s levels.
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