High leverage and booking trends leads Argus to downgrade Norwegian Cruise Lines

Norwegian Cruise Line Holdings’ (NYSE:NCLH) high debt-to-capital ratio leaves the cruise operator vulnerable to softness in the global economy and travel trends and more recently, geopolitics, leading Argus to downgrade NCLH to Hold from Buy.

Norwegian’s (NYSE:NCLH) most recent quarterly report underscored diminished demand for European destinations by American travelers. Ticket sales and onboard revenue were down ~3%, and while adjusted EBITDA beat estimates, this was attributed to lower fuel costs and operating expenses rather than stronger demand. This prompted the company to lower its 2025 net yield growth to 2% to 3% from 3%, previously.

Based on reduced fares for its Oceania brand (with ports across Europe and the Middle East) and the slowdown in advanced bookings, Argus analyst John Staszak lowered his FY25 EPS estimate by 6.4% to $2.06 and FY26 by 4% to $2.50 versus the consensus estimates of $2.04 and $2.46, respectively.

As for the company’s balance sheet, with long-term debt increasing by nearly $1B between Q4 2024 and Q1, Norwegian’s (NYSE:NCLH) long-term debt-to-capital ratio increased by 710 basis points to 90.2%, significantly above the industry average of 59%. This not only rules out the possibility of a dividend but also leaves Norwegian (NCLH) financially exposed to rising fuel costs, worsening currency headwinds, and a potential global economic slowdown.

“Primarily reflecting elevated expenses and stubbornly high debt, the shares appear fairly priced at a projected 2026 P/E of 8.8x our revised 2025 earnings estimate,” Staszak said in a note to investors, justifying his Hold rating on the stock.

The company will report Q2 results before the market opens on July 31, expected to show an adjusted profit of $0.51 per share on $2.55B in revenue.

Norwegian Cruise Line (NCLH) shares are down ~1% into Wednesday’s open, versus modest gains for competitors Carnival Corp (CCL) and Royal Caribbean (RCL). Shares of Viking Holdings (VIK) are fractionally lower.