Norwegian Cruise Line's stock looks very attractive for these reasons, analyst says

By Tomi Kilgore

A number of analysts started coverage of Viking's stock with bullish ratings a month after it went public

Shares of Norwegian Cruise Line Holdings Ltd. sailed higher on Tuesday after a rare bullish call from an analyst who believes the valuation now looks "particularly compelling" amid a very favorable industry backdrop.

Mizuho's Ben Chaiken raised his rating on Norwegian's stock to buy from neutral and bumped up his price target to $24 from $21. That makes Chaiken one of seven of the 21 analysts surveyed by FactSet who are bullish on the stock.

The stock (NCLH) rose 3.6% in afternoon trading after paring earlier gains of as much as 5.7%.

Chaiken believes Wall Street sentiment is starting to shift positively toward the stock in the wake of the company's Investor Day, when the full-year profit outlook was raised for a second time in three weeks.

He sees further upside to earnings from a favorable industry-supply backdrop, cost-cutting and a reorganization of itineraries, which have helped drive greater yields.

And after Norwegian underperformed its peers by a wide margin for a while, Chaiken believes its valuation has been "completely reset" as concerns over the relative lack of free cash flow and the negative impact of future ship orders on the company's balance sheet have been fully reflected in the stock's price.

And with demand for cruises still strong, "we see upside to yields from [Norwegian] optimizing its fleet itineraries (i.e. simplifying), with a longer-term yield tailwind from further buildout of its private island portfolio," Chaiken wrote in a note to clients.

Shares of other cruise operators also got a lift Tuesday, as Carnival Corp. shares (CCL) surged 3.3% and as Royal Caribbean Group's stock (RCL) gained 0.8%, while the S&P 500 SPX slipped 0.1%.

And shares of Viking Holdings Ltd. (VIK) powered up 4.1%, toward their highest close since going public on May 1, after a number of analysts started coverage of the company. The stock was trading 29% above the initial public offering price of $24 for Viking's stock, implying a market capitalization for the company of about $13.3 billion.

J.P. Morgan analyst Matthew Boss initiated coverage of Viking's stock with an overweight rating and $34 stock-price target.

Boss noted that with 80 river-cruise ships, Viking holds a 51% market share in the river-cruise market. The company also has "priority access" to 97% of docking locations, "which equates to a higher barrier to entry" for competitors.

"On top of this, Viking guests purchase based on the itinerary rather than the ship, which allows older vessels to continue to generate similar yields and margins compared to new vessels (equals no yield cannibalization), as well as create efficiencies around shipbuilding and labor since Viking vessels are identical to each other," Boss wrote.

BofA Securities' Andrew Didora started Viking's stock with a buy rating and $35 price target.

Didora likes the fact that, while other cruise operators offer different brands for many different types of customers, Viking is focused on one brand and targets older, more affluent customers. He noted that the average age of Viking passengers in North America is 55 and over.

"[Viking] operates a unique, high-end business model that generates daily net per diems over $500, which is higher than every other cruise line, other all-inclusive resorts, and publicly traded hotel companies," Didora wrote.

Both BofA Securities and J.P. Morgan were among the underwriters of Viking's IPO.

Of the eight analysts surveyed by FactSet who now cover Viking, six are bullish on the stock and two are neutral.

-Tomi Kilgore

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05-28-24 1507ET

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