Norwegian Cruise Line Holdings Ltd. (NCLH) reported fourth quarter and fiscal year 2012 earnings on Monday, February 11th. In the company's first earnings release since going public in January, it topped analyst estimates earning four cents per share, ahead of the penny the Street had been looking for. On a full year basis, the company earned 97 cents per share, a gain of over 36% year-over-year. Net yield for the year increased 2.4% on a constant currency basis, while net cruise costs per day excluding fuel fell 4.6%; including fuel net cruise costs still fell 0.5%. Fuel costs net of hedging increased from $571 per metric ton in 2011 to $664 in 2012. However, the company remains focused on reducing the amount of fuel used and has many ongoing projects to improve fuel usage.
Norwegian's pipeline of new ships is no doubt what has investors excited about this stock, which is up almost 50% since going public. While the company currently has 11 ships in its fleet, an additional ship in each of the next 3 years does not seem that significant. But when you consider the size of these ships, they represent over a 46% increase in Norwegian's passenger capacity. Furthermore, when you consider Norwegian's option to order a sister ship to the Breakaway Plus for delivery in 2017, that would increase capacity 63% from currently levels. Another catalyst for Norwegian is that the Pride of America will undergo renovations in March of this year in Honolulu. This is a $30 million investment in this ship and will include upgrades throughout, along with 24 new suits on deck 13. Norwegian is the only large cruise ship operating inter-island Hawaii cruises.
The company believes 2013 will be a turning point in its business as it works to improve on the success of the Norwegien Epic with the new Breakaway and Breakaway Plus classes of ships. The Breakaway will become the largest cruise ship to homeport year around in New York. The goal of the new ship is to bring the best of New York City to a cruise ship with unique dining options and three Broadway shows onboard. The reason why now is a turning point for this company is these new ships will greatly increase the company's ability to compete with its larger rivals.
When you look at Norwegian compared to its larger peers, you can see investors have really been driving up the value of this stock. For example, it is trading at 22 times next year's earnings versus Royal Caribbean Cruises Ltd. (RCL) at just 11.91 times next year's earnings. When you look EV/EBTIDA and EV/Revenue ratios, you can also see Norwegian is trading at a premium to Royal Caribbean and Carnival Corporation (CCL). Carnival also has an attractive dividend yield of 2.6%. A high growth rate is the one thing Norwegian has going for it; however, at $28 per share, it appears most of that growth is already priced in. Norwegian largely focuses on a differentiation strategy, marketing its "Freestyle" cruising offerings in major cruise markets, including the Caribbean, Europe, and Alaska.
Since Norwegian has only been trading a short time, this is an hourly chart of the stock after the initial bounce on the IPO. There is strong support and buying interest as this stock has risen sharply since the IPO. I believe the current run could be ending as valuation has become stretched. The first possible area to pullback to could be around $27.50 per share. However, despite many positives for this company, it is priced in at this level, and I would not be excited about buying this stock until a pull back below $25 per share.
Data sourced from: Company filings, and Yahoo! Finance. Chart from: Freestockcharts.com