UBS Securities has upgraded Norwegian Cruise Line Holdings (NCLH) shares to “buy” a week after it posted much-improved preliminary booking results for the third quarter.
The owner of 29 cruiseships reported an occupancy of 82% for the quarter, up 65% from the second quarter, during a 6 October investor day in New York.
“We are upgrading [Norwegian] to buy from neutral with a price target of $15 ($18 prior), given the significant improvement in bookings in its Q3 preview, showing it has caught up to the other cruise lines in occupancy while still keeping price nicely ahead of 2019 levels,” analyst Robin Farley wrote in a note.
The bank also reduced its 2022 price targets for Royal Caribbean Group to $56 from $65 and Carnival Corp to $8 from $11, but still gave the stocks “buy” ratings.
“We see NCLH as our next most preferred name due to relatively greater concentration of domestic passengers sourced and strong pricing given its higher exposure to the luxury segment,” Farley said.
She noted that Norwegian’s third-quarter occupancy result is “catching up” to Carnival’s previously reported third-quarter figure of 84%.
“[Carnival] is at risk of underperforming on yield growth relative to the other two cruise companies because of its greater European passenger sourcing as well as the strengthening US dollar, but we still see upside for [Carnival] as demand recovers,” she wrote.
She also pointed out that Norwegian forecast net revenue per cruise day growth in the low single-digit percentage points and revenue growth in the high single digits, compared with the same period in 2019.
By comparison, she noted that Carnival’s revenue per cruise day for the third quarter was 4% lower than for the third quarter of 2019.
Farley described UBS as “overweight” the entire cruise sector, meaning she expects listed companies’ shares will outperform historical average results over the next eight months to a year.
The investment bank has a “preference” for Royal Caribbean, given its record pricing on bookings for this year’s second half and 2023 and its lower near-term debt maturities.
At the same time, UBS revised its adjusted earnings-per-share (EPS) outlooks for all three cruise behemoths, based on inflation and higher fuel prices.
It cut its 2022 adjusted loss-per-share expectation for Norwegian, for example, to $4.66 from $4.97 and raised its 2023 adjusted EPS estimate to $1.55 from $1.44.
