Cruise Lines Upgraded to 'Outperform', Norwegian Cruise Line (NCLH) Has Most Upside - Macquarie

March 2, 2021 9:55 AM EST
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Price: $29.51 +10.32%

Rating Summary:
    13 Buy, 11 Hold, 1 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 20 | Down: 24 | New: 32
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Macquarie analyst Paul Golding upgraded the cruise lines sector to "Outperform" from "Neutral" as he sees a positive catalyst horizon.

The fundamental picture has much improved with COVID-19 cases dropping and the number of vaccinated people rising on a daily basis

“We think most negative catalysts are now in the rear-view mirror and think the next possible round of suspensions could be bookended by a firmer resumption announcement in the US. Technical instructions from the CDC are also forthcoming and could drive more confidence. And while the risk of new variants could make a resumption choppy, vaccine modifications and lockdown fatigue could make these less impactful,” Golding wrote in a note sent to clients.

His research showed about 1,000 available sailings with departures before July 2021 across the three cruise operators and their respective brands. According to him, June 30 is seen as a safer bet on a scaled resumption.

To this end, Norweigan Cruise Line (NYSE: NCLH) is the best-positioned as it has “most ships slated for sailings by this date relative to fleet size, but the latest avg. initial start date based on our proprietary itinerary dataset.” NCLH is now rated as “Outperform” (prior “Neutral”) and a PT of $40.00 per share (old $18.00).

“While shares have bounced quite a way off their 1-yr lows, and barring recession or a sector rerating, the catalysts should trend more positive from here into summer, which is coming together as a target for leisure broadly, but also in consumers’ eyes given incrementally stronger 2H booking commentary from RCL on pricing vs. 2019 incl. FCCs for example. Once the cruise lines start throwing off cash in a normalized environment (starting at some point in FY22 we think), not only should the deleveraging offset currently high EVs, interest savings that start to flow to the bottom line ~FY23 should drive EPS improvement vs. consensus, driving share prices even higher,” he adds.

Golding also upgraded Royal Caribbean Group (NYSE: RCL) to "Outperform" with a new price target of $100.00 per share from the old $54.00. Similarly, Carnival (NYSE: CCL) is also rated as "Outperform" now with a price target of $31.00 per share from $16.00.

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