Norwegian Cruise Line Holdings: Good News
Summary
- Norwegian Cruise Line Holdings' resumption of voyages outside of the US is very good news for the cruise line sector.
- Cruise liners have an opportunity to showcase their health and safety procedures and combined with accelerating vaccinations, the CDC could even open up the cruise liner sector sooner than expected.
- NCLH can go up to $45 over the next 12 months assuming the sector reopens.
Norwegian Cruise Line Holdings (NYSE:NCLH) announced a phased return to cruise operations this week which is a big deal for the sector as cruise ships are still not allowed to sail to US ports. I will show why the resumption of cruises outside of the US is potentially a big catalyst for the sector with more good news to come.
Resumption of voyages outside of the US
While cruise ships are still not allowed to sail to or from US harbors yet, Norwegian Cruise Line Holdings announced this week its Two-Pronged Plan for Long-Awaited Return to Cruising Within and Outside the US … and this is major good news for those of us that have invested in cruise line companies and hope for a continued valuation rebound.
Norwegian Cruise Line Holdings' phased operations plan proposes new sailings in Jamaica, Dominican Republic and Greece, all popular cruise ship destinations, with a starting date in July 2021.
(Source: Norwegian Cruise Line Holdings Website)
The announcement was made after Norwegian Cruise Line Holdings said this week that it submitted a plan to the Center for Disease Control to allow cruise liners to start sailing again from US ports this summer and before November 1, 2021 - the date set by the CDC's Conditional Sale Order.
The resumption of cruises outside of the US is a very positive development and a big milestone that moves the sector closer to normalization. It also means that a vaccinated US citizen can board a plane, fly outside of the US and hop on a cruise ship in the Caribbean quite soon.
The Caribbean is the most popular cruise destination, by far, and will likely reclaim its #1 spot as soon as the sector reopens.
(Source: CLIA Cruise Line Industry Report 2021)
New cruises will be a test run and allow cruise liners to demonstrate their health and safety standards to authorities
Norwegian Cruise Line Holdings is setting up strict health and safety protocols so that any kind of concerns on behalf of the Center for Disease Control are addressed. Cruise line companies are going to test guests and crews for COVID-19 and may even require passengers to show proof of vaccination.
The resumption of cruises outside of the US puts a lot of pressure on American health authorities to open up the cruise line sector in the US … and this pressure is only going to build as the vaccination program accelerates.
More than 100m people have now received a COVID-19 vaccine and the current administration is stepping up to have another 100m people vaccinated by the end of April. The US administers millions of shots per day and a return to normal now is just a question of time. If the US vaccinates at the current rate, the US could (theoretically) be fully vaccinated by the end of July.
(Source: NPR)
Based on CDC guidance, fully vaccinated people no longer have to show a COVID-19 test before or after a trip within the US and there is no longer a requirement to self-quarantine. You are counted as fully vaccinated two weeks after you have had your last dose of COVID-19 vaccine. Once you are fully vaccinated, your life is set to return to normal and you can do almost everything you used to do before the pandemic.
(Source: Center for Disease Control)
The US is the most important market for the industry
The cruise line industry won't be able to come back without the US reopening its ports.
Under normal conditions, about 30 million people a year are passengers on ocean cruises and the success of the cruise line industry depends largely on Americans which are the most important passenger group.
(Source: CLIA Cruise Line Industry Report 2021)
The cruise line industry has very high levels of customer loyalty with two out of three cruisers willing to go on another cruise within a year, if given the opportunity.
(Source: CLIA Cruise Line Industry Report 2021)
Implications
Cruise line companies and their shareholders are set to benefit from the resumption of voyages outside of the US and the accelerating vaccine roll-out because the CDC could feel mounting pressure to open up the domestic cruise line sector before the stated deadline.
A quicker than expected return of cruise ships to US ports would be a big catalyst for cruise line companies because this is not yet priced into valuations.
Based on Tipranks' information, the analyst price target is $31.63 on Norwegian Cruise Line Holdings which is about where the share price is right now …
(Source: Tipranks)
But like I said in my original article, the view on cruise line companies is still quite negative, too negative … especially as more news about a reopening comes out and the cruise line sector reports higher interest in new cruises.
Norwegian Cruise Line Holdings has potential based on trend, strength and valuation to trade up to $45 based on $3-share in post-COVID-19 FY 2023 earnings and an earnings multiplication factor of 15 … which you have seen in the past. 50% capital growth is still possible if more capital flows back into the cruise line sector and earnings estimates are refreshed. A delay in the reopening or new COVID-19 outbreaks at sea are the biggest risks cruise line companies face.
Closing thought
No, cruise line companies are not going out of business. A new chapter is opening up with significant pent-up demand to be unleashed shortly and the cruise line industry is ready to roar back. The resumption of voyages outside of the US is a positive step forward. Many sectors that have stumbled through no fault of their own have returned from the ashes … and cruise line companies still have a lot of catch-up to do. Norwegian Cruise Line Holdings would be more fairly valued around $45 and not $30.
This article was written by
Analyst’s Disclosure: I am/we are long NCLH. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.