UPDATE: UBS Cuts Norwegian Cruise Line Holdings (NCLH) to Neutral and Lowers Estimates

(Updated - October 5, 2016 8:13 AM EDT)

UBS downgraded Norwegian Cruise Line Holdings (NASDAQ: NCLH) from Buy to Neutral with a price target of $42.00 (from $54.00). Analyst Robin M. Farley said checked suggest the Caribbean and Europe put 2016 guidance at risk. He also sees risk to 2017 outlook, and he reduced estimates.

"We are lowering Q3 and Q4 yield and reducing growth we had been looking for in 2017. We are also concerned that expense in '16 may come in closer to the +2.5% that NCLH had originally guided, rather than the slimmed down 1.25% expense increase that NCLH had targeted when lowering revenue expectations earlier this year," said Farley.

Discussing Caribbean and Europe checks, the analyst said, "Our channel checks find some price offers as low as $279 for 7-day Carib cruises in late Q3 and for Q4 – with NCLH using price cuts, not just softer promotional tools like noncash value-adds. From our channel checks, NCLH seems to be under more pressure for Carib Q4 than other brands. In a year with strong Carib, NCLH attributes softer demand to higher supply growth in the Carib than industry - NCLH has 15% increase in Carib supply from the Escape while others in industry were down low single digits. We have also previously written about challenge for NCLH of not having European passengers to source when North American demand for Europe is under pressure."

Farley added, "When NCLH missed Q2 guidance and lowered for the year, they implied 2017 EPS guidance of $3.91-$4.25 taking '16 midpoint EPS, but we believe that is at risk. Our channel checks indicate prices on the books for 2017 are not looking as solid as for some other brands for N American sourcing. And the Norwegian brand will launch in China for the first time next year – while at the same time, CCL has delayed its 2 brand launches for China – the AIDA brand and the Carnival brand both originally scheduled for '17 launch were moved back at least a year to '18. Since this delay followed AIDA's brand launch party this summer in China, that suggests it has become more pressing that newer brands may need more support in China. As a result, we are raising our expense expectations for NCLH in '17 to +2.4% from +1%. Our checks with China cruise sellers indicate lower price points for Norwegian since it is a new brand."

For an analyst ratings summary and ratings history on Norwegian Cruise Line Holdings click here. For more ratings news on Norwegian Cruise Line Holdings click here.

Shares of Norwegian Cruise Line Holdings closed at $38.05 yesterday.

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