Analyst Note
| Jaime M. Katz, CFA |We don’t plan any change to our $28 fair value for no-moat Norwegian Cruise Lines after absorbing its investor meeting update and view shares as significantly undervalued. In fact, after lapping the slower return to profitability that no-moat Carnival reported last week (the firm generated around $300 million in EBITDA in its third quarter versus $2.4 billion in third-quarter 2019), we are more constructive on Norwegian shares given management’s rhetoric. Not only are bookings in line with 2019 levels (at 245 days before sail) with pricing “meaningfully higher,” but EBITDA is also slated to reach record levels in 2023 (a promise Carnival couldn’t confirm). A unique positioning offers Norwegian the ability to keep its price leadership position in the cruise industry, thanks to robust capacity growth (with premium pricing on new hardware), rich cabin mix (60% balconies), greater quantity of upscale berths (nearly 3 times Royal Caribbean), and a disciplined market-to-fill strategy (rather than discount). Additionally, with future cruise credits stemming from COVID-19 cancellations expiring in December 2022, next year’s pricing should be liberated from any drag from relocated bookings.