Norwegian Cruise Line's Stock Will Sail Higher, Morgan Stanley Says

For the first time since 2016, Morgan Stanley says Norwegian Cruise Line Holdings Ltd NCLH should be bought by investors despite an uncertain cruise environment.

The Analyst

Morgan Stanley's Thomas Allen upgraded Norwegian Cruise from Equal-Weight to Overweight with a price target lifted from $58 to $62.

The Thesis

Allen's bullish stance on the cruise operator is based on three factors:

1. Morgan Stanley's latest monthly survey of travel agents to better understand cruise demand is encouraging. Conversations with travel agents pointed to strong qualitative data while internet data on pricing point to solid quantitative readouts for Norwegian Cruise.
2. The U.S. leisure market could see a boost from large individual tax refunds and Norwegian Cruise boasts a greater domestic exposure at 75 percent U.S. sourced than its peers.
3. Management's informal 2 percent to 3 percent yield growth guidance appears conservative with upside coming from both the U.S. market and international demand, especially in China which is seeing solid demand.

Allen said Norwegian Cruise's stock suffered from a difficult 2018 where the multiple de-rated by four times due to recession and leverage concerns. Despite a 20-percent rebound since the start of 2019, shares are still attractive at 10 times next-12-months price-to-earnings ratio.

Price Action

Shares of Norwegian Cruise Line were trading higher by 1.5 percent at $52.57 Wednesday afternoon.

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