'We believe an industry improvement in US-sourced passengers for Europe since late 2016 should disproportionately benefit NCLH given the company sources over 70% of its [customers for Europe cruises] from the US,' Wells Fargo analyst Tim Conder said, comparing that to 30% to 35% for Royal Caribbean and 30% for Carnival Corp.
While Conder said this could lead NCLH to give a 'modestly improved' 2017 outlook when reporting fourth quarter 2016 earnings on Feb. 22, 'this already appears discounted in shares.'
Late Q2 through year-end issues for NCLH—challenges sourcing US passengers for eastern Mediterranean cruises, Miami capacity, delayed approval for Cuba sailings and South America exposure—should be largely past, Conder said. However, these things will create comparisons issues through Q3 2017.
Assuming no material acceleration in terrorist incidents and improved year-over-year deployments plus Norwegian Joy's introduction in China, the brokerage 'feels comfortable' that NCLH's downwardly revised up 'double-digit' EPS growth forecast for 2017 is achievable.
Last quarter NCLH had reduced its 2017 expectations to double-digit EPS growth from its prior up 15% to 25% forecast.
2018 net yields should accelerate from further deployment improvements and a full year in China, Conder added.
Wells Fargo affirmed its 2016 EPS estimate for NCLH at $3.41 and reduced its 2017 projection to $3.74 from $4.03 on updated constant-currency net yield increases of up 1.9% for 2016 (from up 1.8% previously) and up 1.2% for 2017 (from up 2.6% previously). The brokerage also initiated a 2018 estimate of $4.25.
'Despite further deployment improvements and a full year [for NCL] in China, we are concerned that 2018 non-GAAP $4.55 EPS consensus does not properly factor in likely layering on of incremental higher grade fuel hedges,' Conder said. He advised investor caution in committing new money near-term until additional clarity is offered on Feb. 22.
Wells Fargo rates NCLH 'outperform' (buy) with a valuation range of $50 to $53, based on 11.8 to 12.5 times price to earnings to the brokerage's $4.25 EPS estimate for 2018.
Shares opened at $47.66 Wednesday.