Why Norwegian Cruise Line (NCLH) Remains a Buy on the Dip

The stock market’s dim view of Norwegian Cruise Line (NCLH) has gotten even dimmer.

Last week, NCLH announced the suspension of practically all its voyages between August 1 and September 30. The uptick in current coronavirus cases and stringent safety measures required to ensure passengers’ safety – and their effect on the sailing experience – appear to have resulted in the extension.

If you were booked on a cruise and are disappointed by Norwegian’s actions, don’t blame the cruise operator for the cancellation, says Nomura analyst Harry Curtis. The blame lies squarely with the CDC (the Centers for Disease Control and Prevention). The analyst believes that despite the cruise line’s best efforts to implement the highest safety standards required by the agency, the CDC has shown “limited interest” in discussing the cruise line’s “suggestions for new protocols.”

“Their messaging seems to be don’t even think about resuming operations,” said Curtis, “Even if most businesses are reopening, resorts and casinos are welcoming guests, and airlines are taking off with many flights near capacity with not a peep of objection from the CDC. It would seem that the cruise industry, its passengers and employees have been viewed by the CDC in the same vein as meat packing plants, nursing homes and prisons.”

While the CDC’s current no-sail order applies only until July 24, it is feasible the agency will follow other countries’ recent actions by lengthening the sailing ban. Over the past month, sailing restrictions have been extended by health authorities in several countries, including Canada, Spain, and Australia.

With the current slow pace of development, Curtis thinks it might take the CDC between 3 to 6 months to respond to the expert panel’s recommendations. By then, notes a frustrated Curtis, the 2020 season will be over.

“We believe the sooner the CDC reconsiders the cruise industry as a willing partner, the faster employees get back to work and dedicated cruise customers can enjoy the same opportunity offered to resort, casino and airline customers,” the analyst concluded.

Nonetheless, the current “unjust delay,” doesn’t alter Curtis’ long-term thesis for NCLH. The analyst reiterated a Buy rating, along with a $23 price target. The implication for investors? Upside potential of 35% from current levels. (To watch Curtis’ track record, click here)

Overall, the beleaguered cruise line is getting mixed signals from the Street. NCLH’s Moderate Buy consensus rating is based on 8 Buys, 5 Holds and 1 Sell. However, the $16.55 average price target implies the analysts expect shares to drop nearly 3%. (See NCLH stock-price forecast on TipRanks)

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