Norwegian: Investor Day Outlines Methodical Improvement in Profits Over Time; Shares Attractive

Shares of narrow-moat Norwegian rose 8% in response to an improved outlook for 2024 and a robust roadmap to its initial 2026 financial goals laid out at its May 20 investor day. Consumer appetite for travel remains resilient, translating into strong pricing that let the firm lift its 2024 as-reported net yield outlook to 7.2% from 6.4% prior. With the 2024 cost outlook unchanged, higher pricing falls to the bottom line, with Norwegian now expecting 2024 adjusted EPS of $1.42, ahead of its May 1 forecast of $1.32 and our $1.26 estimate. We believe investors were impressed with a concise 2026 financial plan, which unveiled 2026 EPS of $2.45, operational EBITDA margin of 39%, and net leverage at a mid-4 times level. This was near our 2026 EPS estimate of $2.32 but above our 34%-35% EBITDA margin projection, likely benefiting from the $300 million cost savings initiative Norwegian is set to pursue. Our net leverage expectation was below 4 times, but assumed excess cash was utilized for debt paydown, an effort that is not included in Norwegian's outlook.