Analyst Note| Jaime M. Katz, CFA |
We don’t plan to materially alter our $30 fair value estimate for no-moat Norwegian Cruise Line Holdings after digesting third-quarter results and the firm’s updated prognosis for a return to profitability. We view the shares as modestly undervalued. In the third quarter, Norwegian burned $275 million per month in cash as it continued to ramp operations; this figure is set to climb to $350 million in the fourth quarter as the firm prepares to have 75% of its capacity running by year-end. Third-quarter gross revenue of $153 million and an adjusted loss per share of $2.17 are still well below the long-term normalized earnings power of the company, given that just 40% of capacity was sailing at the end of the period. Additionally, Norwegian offered a less sanguine outlook for 2022 than no-moat peer Royal Caribbean, calling for a return to profitability in the second half of 2022 rather than for the full year. This implies that 2022 EPS could still be negative, lower than our $0.80 projection.