Norwegian Cruise stock falls as analyst worries the 'undeniable' recovery is already priced in

By Tomi Kilgore

Truist's C. Patrick Scholes cuts rating to hold, but raises price target to above that of most bulls

Norwegian Cruise Line Holdings Ltd. was downgraded by Truist analyst C. Patrick Scholes, but it's hard to say he's no longer bullish given that his new stock price target is above those of most Wall Street bulls.

Scholes said after speaking with senior executives at "very large" travel agencies specializing in cruises, and after examining data on future bookings, it is "undeniable" that the cruise industry is on a strong path to recovery.

"That all said, and perhaps to nitpick in light of the exceptional performance of the stocks over the past two months as investor expectations have elevated, we did not observe a second derivative "additional leg-up" in forward booking and pricing trends from our prior observations," Scholes wrote in a note to clients.

He cut his rating on Norwegian's stock (NCLH) to hold, after being at buy for the past 10 months.

Norwegian's stock fell 2.3% in premarket trading.

Basically, Scholes said his worry isn't about whether cruise demand is recovering, but rather "how much of that recovery is already priced in?"

After soaring 46.6% in June, the stock rose to a 17-month closing high of $22.52 on July 10, but has pulled back 7.8% since then through Monday.

The stock was still up 69.6% year to date, while the Consumer Discretionary Select Sector SPDR exchange-traded fund (XLY) has climbed 36.0% and the S&P 500 index has advanced 17.8%.

Meanwhile, Scholes raised his stock price target to $23 from $17. His new target was the second highest of the 18 analysts surveyed by FactSet, which included seven who had the equivalent of buy ratings.

Regarding Norwegian's rivals, Scholes kept the hold rating he's had on Royal Caribbean Cruises Ltd. (RCL) and the sell rating he's had on Carnival Corp. (CCL) for at least the past three years. He raised his stock price targets for Royal Caribbean to $115 from $72 and for Carnival to $16 from $11.

-Tomi Kilgore

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07-18-23 0856ET

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