The open waters await the cruise lines.
Norwegian Cruise Line (NCLH) launched from its homeport of Miami on Sunday — its first ship from Florida since the pandemic hit 17 months ago. The sailing of the Norwegian Gem to the Caribbean — which follows a win against the administration of Florida Republican Gov. Ron DeSantis over vaccine passports — marked the third ship to return to service for Norwegian.
While Norwegian Cruise Line’s long-time CEO Frank Del Rio views Florida’s stance on vaccine passports (DeSantis doesn’t want them) as “shameful,” he is beginning to look forward to hopefully calmer waters in 2022. Early data suggests Del Rio — and investors — have reason for guarded optimism.
“I think the back half of 2022 could be the best back half the company ever had. That is how good bookings are for the future. That’s how strong pricing is,” Del Rio said on Yahoo Finance Live.
The wild card here is the Delta variant, which Del Rio concedes has weighed on near-term booking trends as consumers become a bit more cautious.
“There is no hiding it. The spread of the Delta variant has got consumer confidence lower,” added Del Rio.
Here is how Norwegian Cruise Line performed in the second quarter compared to Wall Street estimates when it announced results last week:
Norwegian Cruise Line shares are down 3% year-to-date compared to an 18% gain for the S&P 500. Shares of rivals Carnival and Royal Caribbean have each notched 5% increases on the year.
Despite the uncertainty around the Delta variant and how it impacts cruise demand, Wall Street is mostly staying bullish on Norwegian Cruise Line’s stock.
The general thesis by analysts is that the company stands to materially improve cash flow in 2022 as people return to cruises, allowing it to reduce some $12 billion in debt on the balance sheet and in turn improve earnings. Del Rio told Yahoo Finance Live he thinks Norwegian will reach breakeven cash flow by late in the first quarter of 2022.
“We continue to see Norwegian Cruise Line as a high quality portfolio of assets and brands within an industry experiencing tremendous pent-up demand for its specific product/experience. Near-term headwinds remain palpable, though longer term fundamentals continue to improve, and following a 26% pullback from June 2021 highs (and back to December 2020 levels), and shares at just 7.8x 2023E EV/EBITDA, we see significant value for patient investors, and therefore remain overweight,” said J.P. Morgan analyst Brandt Montour.