Norwegian Cruise: Smoother Seas Ahead?

09/21/2016 8:00 am EST


Taesik Yoon

Editor, Forbes Investor and Forbes Special Situation Survey

As a result of highly-publicized adverse global events, such as the numerous tragic attacks in Europe and the outbreak of the Zika virus, shares of cruise line operators have really taken it on the chin so far in 2016, observes growth stock expert Taesik Yoon, editor Forbes Investor.

One that’s been especially hard hit is Norwegian Cruise Line (NCLH).  Exacerbated by a steep sell-off after cutting its guidance for the rest of the current year and for 2017 earlier this month, the company’s stock has lost nearly 40% of its value since the end of 2015.

Yet this is pretty harsh punishment given the fact that even with the downward revision, NCLH still expects robust earnings growth of at least 15% for both periods. 

Furthermore, as management appears to be taking a fairly conservative stand on some of the key assumptions embedded in this new outlook, there’s a good chance that actual results could prove stronger. 

Combined with the cheapest valuation among shares of major cruise line operators, NCLH’s stock merits strong consideration in our view.

NCLH is a leading global cruise company, operating a fleet of 24 ships with three brands — the Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises.

Despite the solid Q2 operating performance, NCLH lowered its full-year forecast for adjusted net yield growth to just 1.0% from its prior estimate of 3.5%.  The company also reduced its adjusted earnings per share guidance to $3.35-3.45 from $3.65-3.85. 

At the midpoint, this indicates adjusted earnings of $2.18 per share in the second half, which is down significantly from the $2.53 per share implied by NCLH’s previous guidance range and the $2.52 per share analysts had been expecting.

As a result, its stock has tumbled 17% since reporting Q2 results earlier this month. Given such a drastic cut in its outlook, we’re not surprised by the negative investor response.  However, it appears well overdone in our view. 

Once you get past the initial shock of NCLH’s guidance cut, what you see is a company with near term growth expectations that many firms would still envy and whose prospects over the longer term remain very favorable.  That makes its stock deserving of a much higher valuation in our view.

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By Taesik Yoon, Editor of Forbes Investor

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