UBS downs NCL

UBS downgraded shares of the third largest cruise line Wednesday based on a bet that turbulence in the operator’s core market will continue in the months ahead.
NCL competes against Carnival and Royal Caribbean.

NCL competes against Carnival and Royal Caribbean.

In a client briefing Robin Farley stripped Norwegian Cruise Line Holdings (NCL) of its “buy” rating and stamped its Nasdaq-quoted stock with a “neutral” recommendation.

In addition to the downgrade the Manhattan-based equity analyst recalibrated her price target, which was reduced by a $1.00 and now stands at $36.00.

Farley believes NCL is susceptible to ongoing challenges in the Caribbean cruiseship market and pointed out that it isn’t scheduled to take delivery of fresh tonnage until next year.

The analyst believes this will prove problematic for the company because new vessels typically drive yield growth through a higher mix of premium ticket prices.

“NCL has the largest exposure to the Caribbean of the three major cruise lines, and Caribbean capacity is not down much next year,” she continued, adding:

“And with fuel cost savings getting re-invested back into business (in payroll/ food), expenses have also gone up versus initial outlook. So we see fewer levers for upside in the near term.”

Farley acknowledged that the fourth quarter tends to be a strong period for cruise stocks but fears that NCL is subject to an unresolved overhang related to its largest shareholder.

The analyst reminded investors that Genting HK’s shareholders recently voted in favour of a measure to dispose of its 27.7% stake in the cruiseship operator.

“While Genting is not obligated to sell, they did go to the effort and expense of a shareholder vote, with approval valid for a 12-month period and that could have read-through to NCL other large shareholders,” she continued.

“While we see NCL benefitting over the long-term from its unit growth in a recovering industry, there may be more attractive entry points than current levels.”

Today, shares of NCL, which boasts 11 cruiseships and four newbuildings, were commanding $32.33 in midday trading after plummeting by less than one percent.

Norwegian Cruise Line
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