Charting The Course Strategy And New Partnerships Set Sail For Sustainable Growth

Key Takeaways

• The Charting the Course strategy and new ship launches are designed to drive revenue growth and increase customer attraction.
  
• Initiatives in partnerships, sustainability, and onboard enhancements aim to boost guest satisfaction, brand value, and market visibility.
  
• Rising costs, significant debt obligations, and geopolitical disruptions threaten margins and flexibility, despite effective cost management and currency fluctuation risks.

Catalysts

Operates as a cruise company in North America, Europe, the Asia-Pacific, and internationally.

• The company has launched its Charting the Course strategy, focusing on people, product, growth platform, and performance, which is expected to drive strong future revenue and net yield growth.
  
• The unveiling of new ships, including Norwegian Luna and enhancements to other vessels, is anticipated to increase capacity and attract more customers, positively impacting future revenue.
  
• The introduction of new brand offerings and partnerships, such as the collaboration with the National Hockey League, aims to enhance market visibility and engagement, potentially increasing future earnings.
  
• Continued focus on onboard offerings and partnerships (e.g., Starlink for high-speed internet) is expected to boost guest satisfaction and onboard revenue, improving net margins over time.
  
• The company's commitment to sustainability, recognized by external awards, coupled with alternative fuel initiatives, is likely to enhance brand value and attract environmentally-conscious consumers, potentially improving long-term earnings.

Norwegian Cruise Line Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Norwegian Cruise Line Holdings's revenue will grow by 8.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.9% today to 11.8% in 3 years time.
• Analysts expect earnings to reach $1.4 billion (and earnings per share of $2.93) by about November 2027, up from $549.2 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.4x on those 2027 earnings, down from 21.9x today. This future PE is lower than the current PE for the US Hospitality industry at 24.4x.
• Analysts expect the number of shares outstanding to grow by 3.24% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.22%, as per the Simply Wall St company report.

Norwegian Cruise Line Holdings Future Earnings Per Share Growth

Risks

• The impact of foreign exchange rates resulted in a $0.06 negative effect on adjusted EPS for the quarter, which may continue to pose risks to earnings if currency fluctuations persist.
  
• While effective cost management has been highlighted, anticipated adjusted net cruise cost ex fuel per capacity day is set to increase by 2.7% in the fourth quarter, potentially impacting net margins.
  
• The company has significant debt maturities upcoming, including $1.4 billion due in 2026, which could affect financial flexibility and increase interest costs, impacting net margins and earnings.
  
• Macroeconomic factors, such as high inflation rates the company plans to keep adjusted net cruise cost growth below, could lead to increased operational expenses and pressure net margins if not successfully controlled.
  
• The rerouted Middle East sailings, due to geopolitical issues, impact high-yielding offerings, which could hinder revenue if similar disruptions occur in the future.

Valuation

• The analysts have a consensus price target of $29.29 for Norwegian Cruise Line Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $36.0, and the most bearish reporting a price target of just $24.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $12.0 billion, earnings will come to $1.4 billion, and it would be trading on a PE ratio of 13.4x, assuming you use a discount rate of 10.2%.
  
• Given the current share price of $27.3, the analyst's price target of $29.29 is 6.8% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.