Activist investing firm Elliott Management has taken a 10% stake in Norwegian Cruise Line.
Elliott believes the stock could more than double from today’s price if the company makes a few changes.
Norwegian has severely lagged the returns of its peers over the last few years and its expenses have soared.
Shares of the fourth-largest cruise operator, Norwegian Cruise Line Holdings (NYSE: NCLH), are up 11% this week as of noon ET Friday. On Tuesday, activist investing firm Elliott Management announced it had built a 10% stake in the cruise line behemoth. Given Elliott Management’s solid long-term track record led by founder Paul Singer, the market moved Norwegian’s shares higher on optimism for a turnaround.
After Norwegian delivered annualized total returns of 13% from its IPO in 2013 through 2020 — before plummeting amid the pandemic — its stock has only generated total returns of 35% over the last three years. Meanwhile, peers Carnival Corp. and Royal Caribbean are up 181% and 333% over the same time. Due to these disappointing results — and dismayed by the board’s recent selection for a new Chief Executive Officer — Elliott is stepping in to try and shake things up for the better.
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Some of Norwegian’s biggest issues that Elliott noted were:
Elliott hopes to overhaul the board, appoint new management, and rein in excessive spending to boost its EBITDA margin from 36% to 45% over time. Trading at just 9 times forward earnings, the market has Norwegian priced to go out of business, rather than as a stock operating in a cruise industry that has steadily become a more popular vacation option over time. This turnaround isn’t necessarily my type of investment, but I’d imagine Elliott can only help, and the news makes the stock an intriguing watch going forward.
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Josh Kohn-Lindquist has no position in any of the stocks mentioned. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.
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