Is Norwegian Cruise Lines Ready to Catch Up to Royal Caribbean?

Key Points

• Norwegian Cruise Lines is the third largest cruise operator and offers three brands, including its namesake, premium Oceania and ultra-luxury Regent Seven Seas.
• Norwegian Cruise Line's 2023 revenues surged 32% higher than 2019 pre-COVID levels at $8.55 billion as total revenue per passenger cruise day also rose 17% over 2019.
• Norwegian raised 2024 guidance, expecting full-year EPS of $1.23 versus $1.13 consensus estimates.

The cruise industry was at the epicenter of the consumer discretionary sector which was rocked hard during the pandemic. Major COVID-19 outbreak headlines caused monumental damage to shares. After suffering insurmountable turmoil on the way down, the industry bounced back dramatically in the post-pandemic era. Pent-up demand drove bookings to surge back to pre-pandemic levels. And some cruise lines saw booking go beyond those levels.

Royal Caribbean Cruises Ltd NYSE: RCL led the rebound as shares rallied from pandemic lows at $55.14 on March 20, 2020, to all-time highs at $141.70 by April 1, 2024. Norwegian Cruise Line Holdings Ltd. NYSE: NCLH is still lagging behind Royal Caribbean in terms of profitability and share price recovery, and Carnival Co & plc  NYSE: CCL is a distant third. Shares of NCL stock are trading well below its $64.10 all-time highs. Could this allow investors to cash in on the path to profitability that the market may discount?

Anomaly or Laggard?

Norwegian operates under three brands catering to all income levels. Its namesake, Norwegian Cruise Lines, offers freestyle cruising with no assigned dining or entertainment times and relaxed dress codes aboard its 19 ships. Its Oceania Cruises features seven smaller luxury ships specializing in culinary and destination-focused cruising with a 684 to 1,250 guest capacity. Master Chef Jacques Pepin designed its culinary program.

Regent Seven Seas is an ultra-luxury experience coined the World's Most Luxurious Fleet carrying up to 750 guests aboard its five ships, unlimited shore excursion, all-suite accommodations with private balconies, gourmet cuisine and roundtrip business class air tickets.

Daily Ascending Triangle

NCLH displays a symmetrical triangle pattern on its daily candlestick chart. This is comprised of a descending trendline formed at $22.73 on July 12, 2023, and a rising lower trendline formed at $12.71 on November 10, 2023. A breakout attempt through $20.62 fell short on March 28, 2024, as shares fell back into the triangle range, causing the daily relative strength index to peak at the 70-band and slip through the 40-band as shares fell towards the ascending trendline again. Pullback support levels are at $17.55, $15.87, $14.14 and $12.71.

Business Surpasses Pre-Pandemic Levels

Norwegian narrowed losses in 2023 and expects profitability in 2024 driven by record bookings and strong pricing power. For Q4 2023, Norwegian reported an EPS loss of 18 cents vs 14 cents consensus analyst estimates. Net loss was $106.5 million versus $482.5 million in the year-ago period. Revenues surged 30.8% YoY to $1.986 billion, beating $1.960 billion consensus estimates. Onboard revenue per passenger cruise day rose 20% over 2019 in the quarter.

Full-year 2023 revenues grew 32% over pre-Covid-19 levels at $8.55 billion. Bookings hit all-time highs, with pricing reflecting some of the best booking weeks in history. Total occupancy reached 102.9%, with total revenue per passenger cruise day up 17% from 2019. Advanced ticket sales balance ended the year at $3.2 billion, up 52% from the end of 2019.

Back in the Black in 2024

Norwegian raised its forecasts Q1 2024 EPS guidance to 12 cents versus a loss of 20 cents consensus estimates. Full-year 2024 EPS is expected to be around $1.23 versus $1.13 consensus estimates. The company entered 2024 with all-time highs in booked position and pricing for its 2024 voyages. Net yield is expected to rise 5.5% as reported and nearly 5.4% constant currency versus 2023. Adjusted EBITDA is expected around $2.2 billion. The company announced it had ordered 8 new cruise ships for its 3 brands to be delivered over 10 years.

Upbeat CEO Comments

Norwegian Cruise Line CEO Harry Sommer expressed that 2023 was a landmark year for the company. The last cruise port reopened in the Asia Pacific. Consumer demand surged back to return to full ships and dull-year profitability. The company also introduced 3 new ships in 2023, 1 for each brand. Onboard revenue generation rose 27% over 2019 levels. Sommer summed it up, "In conclusion, our strong top-line growth, combined with our continued focus on cost and margin enhancements, are expected to drive 2024 adjusted EBITDA and adjusted EPS to grow by 18% and 76%, respectively, over last year."

Norwegian Cruise Lines analyst ratings and price targets are at MarketBeat.