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Stock Analyst Update

An Undervalued Consumer Discretionary Stock

We think mispriced Norwegian Cruise Lines is poised to pivot nimbly to capitalize on evolving consumer trends.


Narrow-moat  Norwegian Cruise Line Holdings (NCLH) is one of the most undervalued shares in our consumer discretionary stock coverage universe, given its wide margin of safety (more than 30%) to our $69 fair value estimate. Oversupply concerns have echoed through the marketplace in recent months, weighing on cruise operator shares, with both rising fuel prices and foreign exchange headwinds providing incremental pressure. Furthermore, we anticipate that recent speculation that third-quarter Caribbean pricing could be weak lapping 2017’s difficult hurricane season should be fleeting rather than long-lived, leaving the brand intangible asset intact. Additionally, we think plenty of global demand remains untapped to support industry growth and that cruise companies are growing the aggregate demand pie by tapping into new geographies and demographics via wider market segmentation than in the past, helping to support long-term pricing. With Norwegian's compelling value-added bundling and market-to-fill strategies, we think it's poised to pivot nimbly to capitalize on evolving consumer trends and increase sales and EBITDA margins by an average of 9% and a total of 110 basis points, respectively, by 2022.

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Jaime M. Katz does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.