Shares of Norwegian Cruise Lines (NASDAQ:NCLH) sailed through another patch of incredibly rough waters over the past week, with shares tumbling by more than 12% on August 1 following some underwhelming guidance from management.
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Undoubtedly, NCLH stock has been such a tough stock to own, even for investors brave enough to dive back during the depths of 2020, after the stock had shed over 85% of its value in a matter of weeks.
The stock has fluctuated in violent fashion and is still nowhere close to pre-pandemic highs. Despite the negativity and the recent setback for the cruise line stocks, I remain bullish as there’s likely value to be had for those patient (and brave) enough to punch their tickets.
Norwegian Cruise Lines Investors Could be Waiting a While for the Rebound
It’s been years since the 2020 stock market crash dragged NCLH and the broader cruise line industry to unprecedented depths. A few years later, the stock still hasn’t really done as much. Indeed, it’s not hard to imagine that many of NCLH’s long-term investors are getting a tad seasick after recent corrections in the share price. With an economic recession that could be lying ahead, the cruise industry faces yet another potential headwind that could weigh heavily.
Going on a cruise does not come cheap, and though travel has come back a long way since the days of pandemic lockdowns, it’s not hard to imagine that hard-hit consumers will need to put their wallets away for even longer, at least when it comes to big-ticket discretionary purchases.
In that regard, NCLH stock is a rebound play that could take a while to pan out, perhaps to the magnitude of another three and a half years!
NCLH Hit Hard Following Guidance Downgrade. The Negative Reaction May be Overdone
Despite recession headwinds and the latest guidance downgrade, I continue to view cruises as one of those unforgettable experiences that’s on the bucket lists of many young consumers. Indeed, Millennials are big into the experiences, and as their wallets become replenished again eventually, I do not doubt that they’ll be ready to splurge.
In that regard, experiential plays, like the cruise line stocks, still appear to have secular tailwinds that could help power a recovery once the market has moved on from high-rate jitters and recession fears. Just don’t expect NCLH stock to come roaring back overnight.
Looking to the horizon, Norwegian Cruise Line expects full-year earnings per share (EPS) numbers to be around $0.80. That was two pennies below consensus expectations. Indeed, the new guidance seemed to have deflated the enthusiasm that many investors had following a pretty strong season of bookings for the cruise line industry as a whole.
With a recession potentially looming, I’d argue that management is smart to play it cautiously when it comes to forward-looking forecasts. Though there may still be pent-up demand for cruising, recessions do hit the industry particularly hard.
Even with an impressive revenue result, hitting a record $2.2 billion for the second quarter, management’s guidance cast a dark shadow that many investors can’t seem to overlook.
Despite the guidance-induced wave of negativity, Stifel Nicolaus analyst Steven Wieczynski recently hiked his price target to $26 from $22, while maintaining his “Buy” rating, implying an impressive 44.9% gain from current levels.
Stifel previously noted that cruise line stocks have already weathered an unprecedented storm in the pandemic. While a potential recession poses new risks, it’s hard to argue that any looming headwinds will be worse than those that now lie behind the cruise industry.
Is NCLH Stock a Buy, According to Analysts?
Turning to Wall Street, NCLH stock comes in as a Hold. Out of 13 analyst ratings, there are four Buys, eight Holds, and one Sell recommendation. The average Norwegian Cruise Line stock price target is $21.19, implying upside potential of 18.1%. Analyst price targets range from a low of $14.00 per share to a high of $32.00 per share.
The Bottom Line on NCLH Stock
Norwegian Cruise Line stock (and other cruisers) definitely looks tempting after its latest pullback on the back of disappointing guidance. Trading at 1.1 times price-to-sales, NCLH stock trades at a discount to the travel services industry average of 3.1 times.
As NCLH turns into a falling knife again, brave contrarians may have better luck catching it on the way down this time around than back in 2020.
