Various Tailwinds Aid Norwegian Cruise: Retain Stock for Now

We have issued an updated research report on Norwegian Cruise Line Holdings Ltd. NCLH on Sep 17.

Despite high operating expenses, shares of the company have fared well on a year-to-date basis. The stock has gained 6.8% compared with the industry’s rise of 3.6%.

Reasons for Impressive Price Performance

The Miami, FL-based cruise line operator has an impressive earnings history. It beat estimates in each of the trailing four quarters, the average being 9.7%. We expect the company to perform well in the third quarter on higher passenger ticket revenues owing to increased demand for cruise travel. In fact, the company anticipates earnings per share (EPS), excluding special items, in the band of $4.70-$4.80 for 2018 compared with the previous guidance of $4.55-$4.70.

Moreover, the company’s focus on the profitable Chinese market is a major positive. To this end, the company announced partnership with Alibaba Group in May 2017. The company introduced Norwegian Joy (cruise ship designed for Chinese travelers) in 2017, which can accommodate more than 3,500 passengers. Per the data from the Chinese Ministry of Transport, China’s cruise market is projected to grow to 4.5 million passengers by 2020 and expected to become the world's second largest cruise market after the United States by 2030.

Furthermore, we are impressed by Norwegian Cruise Line’s constant fleet expansion efforts. The current fleet size is at 26, following the launch of Norwegian Bliss in April 2018. It has plans to introduce six ships through 2025 and also has the option to introduce two more ships for delivery in 2026 and 2027. Additionally, the company’s efforts to reward shareholders through buybacks also raise optimism. In April 2018, the company’s board cleared a three-year program to buy back up to $1 billion worth of its stock.

The company also has an impressive VGM Score of A. Here, V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of all three scores.

In light of these tailwinds, we believe that Norwegian Cruise Line should be retained by investors for now. The Zacks Rank #3 (Hold) carried by the stock seems to suggest the same.

Stocks to Consider

A few better-ranked stocks in the broader Consumer Discretionary Sector include Columbia Sportswear Company COLM, Deckers Outdoor Corporation DECK and Callaway Golf Company ELY. While Columbia Sportswear and Deckers Outdoor carry a Zacks Rank #2 (Buy), Callaway Golf sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Columbia Sportswear, Deckers Outdoor and Callaway Golf have gained 19.4%, 21.6% and 41.6% in the past six months, respectively.

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