What happened
Shares of Norwegian Cruise Line Holdings (NCLH 3.15%) fell 9% on Thursday after analysts warned of multiple challenges that could derail the company's path back to profitability.
So what
Morgan Stanley analyst Thomas Allen on Wednesday slashed his price forecast for Norwegian's shares from $18 to $14. Allen is concerned about what he sees as deteriorating macroeconomic conditions that could sink the cruise industry's profits.
Norwegian was forced to incur billions of dollars of debt during the early stages of the pandemic, when its ships were unable to sail due to coronavirus-related safety measures. Fortunately, Norwegian's vessels have returned to the open water now that most of those restrictions have been lifted. But the debt remains. And the interest payments required to service that debt are weighing on the company's profit margins.
Moreover, conflict in Europe and the potential for a recession in the U.S. are causing consumers to think twice about booking vacations. If demand for cruises falls, Norwegian could find it much harder to generate enough cash flow to pay down its massive debt load.
Allen warned that these issues could persist into 2023. Analysts, in turn, might be obligated to cut their financial projections for Norwegian in the coming quarters.
Now what
Not all investment firms are as apprehensive about Norwegian's prospects. On Thursday, Susquehanna analyst Christopher Stathoulopoulos placed a $20 price target on Norwegian's shares. Stathoulopoulos believes the cruise line's beaten-down stock price already accounts for the risks to its business. In turn, he thinks Norwegian's price has likely seen its lows and is poised to head higher in the year ahead.
