Is Norwegian Cruise Line (NCLH) Poised for Strong Earnings? - Analyst Blog
Cruise line operator, Norwegian Cruise Line Holdings Ltd.NCLH , is expected to report its second-quarter 2015 results on Jul 27.
Norwegian Cruise Line Holdings does not boast an encouraging track record with respect to earnings. The company has lagged the Zacks Consensus Estimate in three of the last four quarters, with an average earnings miss of 8.32%. The third quarter of 2014 was the only exception when the company reported in-line earnings. Let's see how things are shaping up ahead of this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Norwegian Cruise Line is likely to beat earnings because it has the perfect combination of two key ingredients.
Zacks ESP:Earnings ESP for the company stands at +1.35% as the Most Accurate estimate is 75 cents while the Zacks Consensus Estimate is pegged at 74 cents. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: Norwegian Cruise Line currently carries a Zacks Rank #2 (Buy). Note that stocks with a Zacks Rank #1 (Strong Buy) , 2 or 3 (Hold) have a significantly higher chance of beating earnings estimates. Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.
The combination of Norwegian Cruise Line's Zacks Rank #2 and +1.35% ESP makes us reasonably confident of an earnings beat.
What's Driving the Better-than-Expected Earnings?
We expect second quarter results of this Miami-based company, which offers cruises in various locations including those in the Caribbean, Mexico, Alaska, Europe, Hawaii, New England, Central America, North Africa and Scandinavia, to be boosted by improving travel trends. The company should benefit from the rising demand for leisure and recreation activities with people increasingly looking to make the most of summer amid better economic trends.
Moreover, declining gas prices are an added boon for consumers who are benefiting from a better-looking job market and consistent wage increases. We thus expect the company's top line to be significantly driven by higher passenger ticket revenues.
We are also impressed by the company's efforts to expand. The cruise operator has been constantly investing in new ships to lower fuel costs, carry more passengers and add onboard amenities like faster Wi-Fi service and upgraded theaters. Furthermore, the company stands to benefit from the acquisition of Prestige Cruises International, Inc. - the market leader in the upscale cruise segment and the parent company of Oceania Cruises and Regent Seven Seas Cruises - completed in Nov 2014.
Other Stocks to Consider
Here are some other leisure stocks worth considering, as our model shows these too have the right combination of elements to post an earnings beat this quarter:
The Madison Square Garden Company MSG has an earnings ESP of +4.88% and a Zacks Rank #1.
SeaWorld Entertainment, Inc. SEAS has an earnings ESP of +10.00% and a Zacks Rank #2.
Carmike Cinemas Inc. CKEC has an earnings ESP of +6.52% and a Zacks Rank #2.