Shares of Norwegian Cruise Lines (NCLH 4.64%) fell this week, down 19.5% as of 1:25 p.m. EDT on Friday.
Norwegian had experienced a strong February after activist investor Elliott Management disclosed a stake in the company and advocated for changes. However, Norwegian's fourth-quarter earnings report on Monday morning showed that there is a lot of work to do for the company to improve.
Oh, and the war in Iran, which started last weekend, didn't help matters either.
NYSE: NCLH
Key Data Points
Q4 earnings curbs investor enthusiasm
In the fourth quarter, Norwegian reported revenue of $2.2 billion, up 6% year over year, missing expectations by $140 million; however, adjusted (non-GAAP) EPS grew 47.3% to $0.28, slightly beating expectations.
Despite the earnings beat, forward guidance left much to be desired, as management guided for $2.38 in 2026 EPS at the midpoint. That would mark a 12.8% increase in earnings but also fell well short of the $2.58 Wall Street analysts had anticipated. And some of that increase may be due to lower interest costs as the company pays down debt. Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) was projected at $2.95 billion, an increase of only 8%. Meanwhile, management expects just flat net yields during the year.
Management acknowledged that it is heading into 2026 slightly below the "optimal booking range following certain execution missteps in aligning our commercial strategy with our deployment." That means Norwegian may have deployed too much capacity in response to its demand in certain areas, with management citing the Caribbean as the one specific troubled market.
All in all, the company's results seemed to validate Elliott Management's criticisms that the Norwegian's execution has been poor relative to rivals.
And of course, last week's outbreak of the war in Iran caused oil prices to spike this week. While it's still unclear how long the war will last and what the ultimate consequences will be, an ongoing conflict could depress travel demand while keeping fuel prices elevated. That could threaten Norwegian's already-lackluster guidance.
Image source: Getty Images.
Buy the dip?
After this week's decline, Norwegian remains a high-risk but high-upside play. Obviously, the war, along with Norwegian's significant debt at 5.3 times EBITDA, makes this a risky play.
However, there are some green shoots. Management pointed to Norwegian's luxury brands and newest ships as having record-high demand. Meanwhile, even Elliott believes the company's problems are fixable. So for enterprising investors who aren't averse to risk, Norwegian may be a stock to consider betting on a turnaround after this week's pullback.
