Norwegian Cruise Line (NCLH) Stock Drops 8% on Double Downgrade

  • Norwegian Cruise Line (NCLH) stock dropped more than 8% on Thursday due to a sentiment blow.
  • Credit Suisse issued a double downgrade on NCLH stock, citing premium unsustainability.
  • The overall cruise ship industry has struggled in a big way this year.
Norwegian Cruise Line ship docked in Saint Petersburg. NCLH stock.
Source: Nazar Skladanyi / Shutterstock

One of the hardest-hit sectors during the pandemic, the cruise industry is suffering yet another setback, this time targeting Norwegian Cruise Line (NYSE:NCLH). Recently, a Credit Suisse analyst said NCLH stock has been trading at a premium relative to its peers, although this circumstance may no longer be sustainable.

Specifically, analyst Benjamin Chaiken downgraded NCLH stock to “underperform” from “outperform.” Chaiken also lowered his target price to $14 from $20 per share. This implies a 20% discount to Wednesday’s closing price as well as a 15% loss from the share price at the time of this writing. The analyst explained the following in a research note:

“NCLH is a quality organization, and we are constructive long term, however, the stock has outperformed materially YTD and on a relative basis we see risk to estimates and valuation vs peers.”

To be clear, no outright winners exist within the publicly traded cruise ship realm. Alongside the double downgrade, NCLH stock is staring at a 25% loss on a year-to-date (YTD) basis. While this performance does beat out peers Royal Caribbean (NYSE:RCL) and Carnival (NYSE:CCL) — down 28% and 55% YTD, respectively — investors have hardly received an encouraging take from the wider industry.

NCLH stock dropped more than 8% earlier today and is now down 6% as of this writing.

Macro Woes Hurt NCLH Stock and Its Peers

Notably, neither NCLH stock or its main rivals got off to an auspicious start this year. At the time, inflation woes began barreling down on consumer sentiment. Shortly thereafter, Russia shockingly invaded Ukraine, initially sending cruise ships and many other sectors tumbling. Although the travel subsegment did bounce back temporarily, the Federal Reserve’s sharp response again pressured consumer-dependent enterprises.

Moving forward, NCLH and its peers suffer from a combination of macroeconomic headwinds and consumer behavioral shifts. Regarding the former, with global central banks largely mimicking the Fed’s move to hike interest rates to control skyrocketing inflation, a worldwide downturn may materialize. That wouldn’t help cruise operators, which struggle deeply to make up for lost time.

For the latter category, the lift in borrowing costs has sparked major changes to how companies operate. As enterprises now eschew growth for sustained profitability, layoffs are starting to roll off the assembly line, particularly for the tech sector. Broadly, the loss of good jobs won’t benefit NCLH stock as consumers tighten their belts.

Finally, consumers appear to be trading down their entertainment expenditures, with more demand focused toward at-home alternatives. Obviously, this dynamic puts pressure on NCLH. However, these headwinds apply to the industry as a whole. Thus, any winner in this space comes with the caveat of a relative definition.

On the date of publication, Josh Enomoto did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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