Norwegian Appointing a New Captain, but We Don’t Expect the Firm To Veer From Its Course

We plan to maintain our $27 fair value estimate and Standard capital allocating rating after digesting no-moat Norwegian Cruise Line Holdings’ NCLH CEO transition news. Our rating is bound by limited flexibility on Norwegian’s balance sheet—given its high revenue cyclicality and operating leverage—despite fair investment records and appropriate cash distributions. We continue to expect debt paydown to take precedence for use of excess cash in the near term. Shares trade at a 54% discount to our valuation, offering a buying opportunity for investors willing to withstand the associated volatility. We think the current macro uncertainty obscures Norwegian’s progress toward profitability and solid booking position, with pricing slated to improve in fiscal 2023.

Frank Del Rio will step down from his position as president and CEO on June 30 after eight years at the helm, during which he played an instrumental role in scaling the business and navigating the industry’s toughest times, in our view. Harry Sommer, current president and CEO of Norwegian Cruise Line (or NCL, Norwegian’s largest brand), is set to succeed Del Rio. Encouragingly, following the resignation, Del Rio plans to serve as a senior advisor through 2025, which we believe should afford a seamless transition.

With roughly 30 years of industry experience across sales, marketing, revenue management, and business strategy, we think Sommer is well-suited to assume the top spot at Norwegian. During his recent role at Norwegian, Sommer effectively led NCL alongside Del Rio, through the successful relaunch of NCL fleet (after a 500-day pause), introduction of Norwegian Prima (in a brand-new class design), and a robust booking season in 2022. As such, we hold a favorable view on the succession plan, and we don’t foresee imminent changes to the firm’s strategic direction. Our long-term prognosis (high-single-digit average revenue growth beyond fiscal 2023 and mid-20% EBITDA margins) remains intact.