Has the ship sailed with Norwegian Cruise Line Holdings (NYSE:NCLH)? Fortunately for investors looking at NCLH stock now, it hasn’t.
A year ago, when the pandemic first started to affect global commerce, shares in this cruise line operator cratered from nearly $60 to prices that briefly hit single digits. But, over the past 12 months, NCLH stock has made a more than threefold climb from lows around $8 per share to nearly $32. This has happened in anticipation of a comeback for the travel economy.
But even after this massive rebound, there’s still opportunity here. While this name is up 216% over the past 12 months, it’s still down about 50% from its pre-pandemic high-water mark.
Travel stocks have generated tremendous gains due to the “reopening trade,” which kicked off in full force last November with the vaccine rollout. Now, some more cautious investors may believe it has been overdone.
However, with pent-up demand pointing to materially better results in 2022, there’s enough in play to keep this stock on its upward trend. So, what’s the best move now, ahead of the cruise industry getting back to normal? It’s time to hop aboard, before the full extent of NCLH’s upcoming recovery gets fully priced into shares.
Why the ‘Reopening Trade’ Isn’t Over Yet for NCLH Stock
Most segments of the travel economy were hit hard by Covid-19. But, the cruise line space saw one of the largest disruptions to their operations. Effectively shut down since last March, cruise operators have been running on empty, dependent on heavy borrowing to stay afloat.
Even now, despite the optimism that a return to the old normal is only a few months away, some of the details remain unclear. The Centers for Disease Control and Prevention (CDC) has updated its conditional sailing order, incorporating guidance on vaccination. However, it has not provided a clear date for when cruise lines like Norwegian can resume full operations once again.
So, why are markets still bullish, as seen from the continued upward moves of NCLH stock and its peers? Investors have largely written off 2021 as the year this industry gets back to business as usual. They’re buying in anticipation of 2022 and 2023, when operating results are set to get back to pre-outbreak levels.
Some may believe they’re putting the cart before the horse. Yet, based on guidance from the company itself, 2022 results may not only meet, but beat, expectations. This points to additional upside for shares.
Pent-Up Demand Could Mean a Full Recovery in 2022
With the novel coronavirus affecting most of its operations, Norwegian’s revenues collapsed between 2019 and 2020, from $6.46 billion to $1.28 billion. Now sell-side analysts are calling for similarly low numbers this year, at $1.34 billion. But, next year, pent-up demand could mean top-line results on par with pre-pandemic levels around $6 billion.
And $6 billion is just the average of consensus. The top end of estimates call for $7.45 billion in revenue next year. Moreover, based on data pointing to pent-up demand, hitting that high end looks more than attainable. In a recent investor conference presentation, the company itself has said cumulative booking for the first half of 2022 has been “significantly ahead” of 2019 levels.
Beating those revenue expectations points to the company beating earnings expectations in 2022 as well. The highest projections call for $2.69 per share of NCLH stock. But, just like how analyst revenue projections may underestimate the extent of the upcoming recovery, earnings estimates could be underestimating how much of this pent-up demand falls straight to the bottom line.
In short, the rapid run-up in NCLH stock isn’t just due to hype. There’s solid evidence that a full-on recovery is around the corner. Sure, a move back up to about $60 may not happen immediately. Additional gains may come at a slower pace. But the “recovery trade” in this stock is just getting started. And with it still in its early stages, there’s ample time left for investors to take advantage of this opportunity.
Bottom Line: It’s Time to Go Full Steam Ahead
This year may be another year of recovery for cruise operators like Norwegian. But, you’re not buying NCLH stock on this year’s results — you’re buying on next year’s. Based on the company’s current booking guidance for 2022, it’s looking like the “pent-up demand” thesis is playing out. Results in 2022 could crush projections.
Yet, at today’s prices, that reopening remains just partially priced into shares. As more positive news comes out — such as a full end to the CDC’s no-sail orders — expect additional gains. Subsequent data pointing to record top-line results next year will move the needle, too.
Like I said, moves toward $60 will be more gradual. However, with things slowly getting better instead of worse, now’s the time to enter a position in NCLH stock.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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