Of all the stocks that 2020 battered senseless, Norwegian Cruise Line (NYSE:NLCH) had to be among the hardest hit. With coronavirus restrictions pretty much shutting down business altogether for months, and only the barest stirrings of return starting to come back, it might have seemed like Norwegian Cruise Line was headed for Valhalla. However, a recent 10.3% gain—that's held into this morning's trading as of this writing—for the company is sparking new hope that a buffet-packed trip across the seas might once again be viable.
Pent-Up Demand and the Recovery Narrative
The latest word out of Goldman Sachs analyst Stephen Grambling notes that there are “stronger signs of pent-up leisure demand” in the market, and that's going to put some more potential passengers on Norwegian ships. Nothing we haven't heard before from a variety of issues, of course, but there's more here than just a connection to the recovery narrative that's fueled so many other boosts of late. Additionally, Grambling noted that the customer mix seen at Norwegian should allow it to offer “vaccine-only cruises”, which would allow it to effectively function as normal despite Covid restrictions.
Indeed, the cruise industry as a whole—and Norwegian seems to be leading the charge here—is gearing up for a return to the waters. Norwegian's CEO, Frank Del Rio, recently noted that the cruise industry has spent long enough in Covid isolation, and has already announced that passengers and crew must be fully vaccinated before being allowed on ships. This led to Del Rio sending a letter to Rochelle Walensky, director of the Centers for Disease Control, stating plans to sail once more by July. Should the CDC not sign off, Del Rio noted, Norwegian plans to pull its ships from the US and sail from more welcoming ports.
Grambling also pointed out that the improvements seen in capital markets overall are sparking opportunities for debt payoffs as well as “accretive refinancing”. These factors together led Grambling to issue an upgrade to his assessment of Norwegian, going from “neutral” to “buy”. Additionally, Grambling also raised his price target on Norwegian from its original $27 to its current $37.
Analysts Coming About
Interestingly, looking at the broader analyst pool—as based on our latest research—we find that other analysts in the field aren't quite as keen on Norwegian as Goldman Sachs seems to be, but there is an undercurrent of hope that the stock can return to prominence. Norwegian has been a consensus “hold” since May 2020, though there are signs of new life.
A year ago, Norwegian enjoyed a “buy” consensus, with eight “buy” ratings, seven “hold” and one “sell.” That slipped not long after, though; by six months ago, the company slipped to “hold” territory with eight “buy”, eight “hold” and one “sell”. Three months ago, that same ratio held. That brings us to the present day, with six “buy”, seven “hold” and one “sell” comprising the ratios.
So where's that “new life”? The price targets. The company currently has an average price target of $24.54 per share, with a high of $37 and a low of $13. That may not sound like much, but consider: in the last two months, six analysts—from Truist to Morgan Stanley to Goldman Sachs—have all raised their price targets on Norwegian.
Anchors Aweigh?
Here's the news that's especially telling for Norwegian; as much as some might think that the CDC could put the kibosh on Norwegian's plans to sail once more, Frank Del Rio's assessment that there are other, more welcoming ports out there is not out of line. Reports note that Norwegian's recently-announced itineraries out of Greece have been booked by Americans in around 80% of cases. That means Americans are willing to get to Greece just to take a cruise. There are also signs other cruise lines will do likewise; Virgin Voyages, owned by Bain Capital (NYSE:BCSF), is set to launch its first ship, Scarlet Lady, from the UK this summer instead of its originally-planned launch from Miami.
Naturally, the CDC has a solid base to stand on; it does what it does in pursuit of what it believes serves health and safety. Yet at the same time, the CDC will be directly connected to further job losses should the trend of re-sailing ships from non-US ports continue. That's going to make for some image issues later on, and may be the kind of thing better avoided, especially with all the precautions in place like wholly-vaccinated cruises.
Maybe it is time for cruise vacations to come back. We're already seeing some states ditch mask requirements altogether, and the states doing so aren't exactly seeing case numbers explode. Still, it's noteworthy to see that the cruise lines have a plan one way or another, so perhaps it might be better for the CDC to approve of what it can't really stop anyway. That suggests a return to closer-to-normal conditions for Norwegian and the like, though, which will surely make it a more attractive investment going forward. It was a buy before coronavirus, after all, so why not a buy afterward?
