Buy Alert: A Chronically Undervalued Cruise Stock with 50% Upside

Key Points

• Shares of Norwegian Cruise have been struggling this month following a lackluster earnings report.
• However, they just raised their forward guidance, and multiple analysts call for up to 50% upside. 
• Things should get interesting if the bears cannot take shares lower before the weekend. 

It’s been an unusual month for shares of Norwegian Cruise Line Holdings Ltd NYSE: NCLH. Despite beating analyst expectations for its earnings at the start of the month and logging its highest number of bookings ever, the stock gave up all the gains it had made since December. Considering that by the end of March, shares of Norwegian Cruise had gained more than 70% since November, it was a worrying turn of events for investors. 

It appears as though the culprits in their Q1 numbers earlier this month were a slight miss on topline revenue and lighter-than-expected forward guidance. This latter point, in particular, tends to spook investors more than anything else. While a stock’s past performance plays a large role in the direction it takes, it’s really a stock’s expected future performance that determines if it flies or sinks. 

Bullish Signals Emerge as Norwegian Cruise Line Stabilizes

So, with the company setting more conservative guidance than expected, despite indications that it would be another quarter of record bookings, investors naturally headed for the exit. However, while the stock set dipped significantly the days after the report, it hasn’t gone below the low it set on May 8th. If anything, the sideways action that’s been happening suggests that Norwegian shares are consolidating, and the bulls could soon be back in control. 

This theory is backed up by several analysts who, in the past few weeks, have been calling this dip in Norwegian Cruise shares a serious buying opportunity. Take Mizuho and Truist Financial, for example. Earlier this week, both firms upgraded their rating on the stock from Neutral to Buy and increased their price targets.

Analysts Predict Significant Upside for Norwegian Cruise Line Stock

Truist is looking for Norwegian shares to get to $21, while Mizuho is targeting $24. Considering the stock closed below $17 on Wednesday night, that’s suggesting an immediate upside of some 40%. Going even further than Mizuho was the team at Stifel Nicolaus, who last week reiterated their Buy rating and boosted their price target to $26, pointing to an upside of more than 50%. 

The common themes driving this positive outlook reflect a growing bullish sentiment around Norwegian’s stock. A favorable industry supply backdrop, with only a small increase expected this year, should be a tailwind to their earnings. At the same time, the company’s cost control measures seem to be having the desired effect. There’s also the fact that, as we reported on Monday, Norwegian has just raised its EPS guidance for Q2. 

Getting Involved: Investment Opportunities in Norwegian Cruise Line

Looking beyond these analysts' all-out Buy ratings and bullish price targets, even the analysts with a Neutral rating on Norwegian believe it is significantly undervalued. On Tuesday of this week, the Goldman Sachs team reiterated their Neutral stance on Norwegian shares while upping their price target from $19 to $21. Considering that’s suggesting the stock is due a rally of close to 30%, it’s a wonder they didn’t make it an all-out Buy rating. It was a similar story with Citigroup, who maintained a Neutral outlook last week while increasing their target to $19. 

There’s just no getting away from the sense that Norwegian is extremely undervalued at its current share price of $16.50. Last week, the stock tried and failed to set a fresh low, which could well have been the bear’s final effort. If they have indeed thrown in the towel, then the upside potential could soon start to be realized. 

The fact that the stock closed near its high of the day on Wednesday bodes well for its prospects ahead of the weekend, and investors should be ready to pounce if it shows signs of closing above last week’s high of $17.40.