Norwegian Earnings: As Pricing Growth Trends Toward a Normal Pace, Shares Remain a Steal

We don’t plan any material change to our $29 fair value estimate for narrow-moat Norwegian Cruise Line Holdings after incorporating first-quarter results and increasing our net revenue yield outlook for 2024. Shares traded down more than 10% after earnings, which we believe was a result of Norwegian maintaining its full-year cost forecast despite better-than-expected expenses in the first quarter. We view Norwegian’s cost outlook as pragmatic, given still-high commodity costs (fuel, food) and uncertain geopolitical environments that can disrupt equilibrium in the expense structure. Even when including a 325-basis-point headwind Norwegian faces in 2024 for an increase in dry-dock days, 2024 costs excluding fuel have risen at a 3% CAGR relative to 2019, implying that cost management has been solid. Shares look undervalued.