Shares of Norwegian Cruise Line (NCLH 3.16%) were rising on Tuesday, up 12.6% as of 1:50 p.m. EDT.
Today, activist hedge fund Elliott Management disclosed a large 10% stake in Norwegian, and also published a presentation and letter to the Board of Directors in conjunction with the disclosure. The firm sees material upside in the stock, and it appears investors are cheering the activist's involvement.
NYSE: NCLH
Key Data Points
Elliott sees huge upside if changes are made
In its presentation, Elliott lays out its thesis that Norwegian's stock has the potential to reach $56 per share, representing 159% upside from yesterday's price.
Elliott believes this upside is easily attainable, pointing to Norwegian's inherent strengths, including a best-in-class fleet that's newer on average than peers', a higher percentage of premium suites, and engaged employees. Combined with cruising continuing to take market share in the travel industry, providing a long-term tailwind, Elliott believes improvement is easily attainable.
The obstacle, Elliott contends, is management. In the letter, Elliott lambasts Norwegian's management and Board, citing material deficiencies versus peers across "all aspects of the business," including unit revenues, costs, and margins. That material underperformance has resulted in a substantially lower valuation on an enterprise value-to-EBITDA basis.
Elliott cites a laundry list of poor stewardship, including exorbitant executive pay, even in years of underperformance, questionable related-party transactions with members of the board, and Norwegian's Board being classified. A classified Board staggers votes on members every few years, instead of putting all directors up for a vote every year, making it difficult for shareholders to replace the whole Board.
Image source: Getty Images.
Norwegian may have seen the activist campaign coming
Interestingly, Norwegian may have seen the activist campaign coming, as the company just replaced its CEO last week, appointing former Subway and Burger King CEO John W. Chidsey to succeed Harry Sommer, who had been in the position since mid-2023.
Chidey joined Norwegian's Board just one year ago, so he doesn't necessarily have the historical baggage that Elliott criticizes in its letter. Still, it remains to be seen whether Elliott gets behind Chidsey or advocates for more drastic changes.
In any case, those bullish on the cruise industry may want to consider this potential turnaround at Norwegian, given that the stock is still well below Elliott's price target, even after today's boost.
