Norwegian Cruise Line (NCLH) has had an impressive first half of the year, driven by a surge in travel demand. However, analysts at Truist Securities believe that the stock’s upward momentum may have peaked.
In a recent note, analysts C. Patrick Scholes and Gregory Miller downgraded NCLH shares from Buy to Hold. While cruise stocks overall have experienced smooth sailing this year—with Royal Caribbean Group (RCL) up 103% and Carnival (CCL) up nearly 129%—Truist Securities believes that Norwegian Cruise’s gains have already been fully priced in. Even the Defiance Hotel, Airline, & Cruise ETF (CRUZ) has seen a 36% increase this year, outperforming the S&P 500’s gain of 18.5%.
Truist analysts acknowledge the undeniable recovery in travel demand following the Covid-19 lockdowns. However, with Norwegian Cruise stock already surging by nearly half its value in the past two months, they deem it to be at or near its theoretical “fair value.”
Scholes and Miller have raised their price target on NCLH shares to $23 from $17, suggesting a modest 9% gain from its current level. This positive outlook is rooted in expectations that Norwegian Cruise and its peers will paint a rosy picture of future travel trends during the upcoming earnings season. Analysts may subsequently revise their 2023 earnings projections, leading to higher price targets.
While Norwegian Cruise is set to report its second-quarter earnings on August 4, the company has not responded to requests for current booking trend information. However, CEO Harry Sommer expressed confidence in strong demand and pricing in the May earnings call, extending beyond this year.
In conclusion, Norwegian Cruise Line stock may have reached a turning point, according to Truist Securities. While the stock has seen impressive gains driven by pent-up travel demand, it appears that investors should approach with caution as the current valuation may have already reflected much of the positive sentiment.
