Fleet Expansion And Starlink WiFi Will Improve Guest Experience

Key Takeaways

• Historic fleet expansion and innovative partnerships are expected to boost revenue growth and attract high-value customers through enhanced capacity and guest experiences.
  
• Cost-saving initiatives and operational efficiencies aim to improve net margins and financial returns with disciplined cost management and infrastructure investments.
  
• Geopolitical tensions and tax regulation changes, alongside currency headwinds, threaten Norwegian Cruise Line's earnings and international revenue.

Catalysts

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

• Norwegian Cruise Line Holdings is anticipating significant revenue growth through a historic fleet expansion program, with 13 ships on order including two state-of-the-art vessels debuting in 2025, which will enhance capacity and guest experiences across all brands.
  
• The implementation of strategic partnerships and guest experience enhancements, such as fleet-wide Starlink WiFi rollout and expanded itineraries, could lead to increased revenue per passenger due to higher guest satisfaction and attract more high-value customers.
  
• Cost-saving initiatives and a cultural transformation through the Charting the Course strategy are expected to improve net margins, with a targeted net cruise cost growth rate below inflation, demonstrating disciplined cost management while maintaining an exceptional guest experience.
  
• The introduction of Norwegian Aqua and Oceania's Allura in 2025 with improved fuel efficiency and innovative onboard features can drive increased demand, enhance net yield growth, and fuel margins due to operational efficiencies.
  
• Investments in private island infrastructure at Great Stirrup Cay and anticipated increased guest visits position the company to boost financial returns, having the potential to elevate onshore revenue and further enhance guest experiences.

Norwegian Cruise Line Holdings Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Norwegian Cruise Line Holdings compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Norwegian Cruise Line Holdings's revenue will grow by 7.6% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 9.6% today to 12.1% in 3 years time.
• The bearish analysts expect earnings to reach $1.4 billion (and earnings per share of $2.72) by about April 2028, up from $910.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 10.1x on those 2028 earnings, up from 8.4x today. This future PE is lower than the current PE for the US Hospitality industry at 22.2x.
• Analysts expect the number of shares outstanding to grow by 2.54% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.41%, as per the Simply Wall St company report.

Norwegian Cruise Line Holdings Future Earnings Per Share Growth

Risks

• Norwegian Cruise Line Holdings faces significant currency headwinds, with a $70 million impact from both foreign exchange and fuel, which could negatively influence its earnings.
  
• The company is exposed to the risk of execution challenges and cost overruns associated with its aggressive fleet expansion program, involving 13 new ships and significant capital investments, which could impact margins and returns on investment.
  
• Ongoing geopolitical tensions, such as conflicts in the Middle East and potential disruptions in the Baltic region, could adversely affect itineraries and consumer demand, impacting revenue.
  
• The current U.S. administration's discussions on changing tax regulations could potentially lead to unfavorable changes for the cruise industry, adding a layer of uncertainty to future profit and loss.
  
• The strong U.S. dollar poses a continual risk to pricing power and revenue generation, especially for international bookings as pricing pressures could suppress net yield growth.

Valuation

• The assumed bearish price target for Norwegian Cruise Line Holdings is $21.91, which represents one standard deviation below the consensus price target of $27.09. This valuation is based on what can be assumed as the expectations of Norwegian Cruise Line Holdings's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $38.0, and the most bearish reporting a price target of just $18.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $11.8 billion, earnings will come to $1.4 billion, and it would be trading on a PE ratio of 10.1x, assuming you use a discount rate of 11.4%.
  
• Given the current share price of $17.23, the bearish analyst price target of $21.91 is 21.4% higher.
  
• 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.