Cruise line operator Norwegian Cruise Line Holdings Ltd. NCLH is scheduled to report its third-quarter 2015 results on Nov 3, before market opens.
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 7.78%. The third quarter of 2014 was the only exception when the company had reported in-line earnings. Let’s see how things are shaping up ahead of this announcement.
Factors at Play
Demand for leisure and recreational activities, largely driven by consumer sentiment, are on the rise with people increasingly looking to beat the blues of daily life with occasional holidays and vacations. Also, with the economic scenario looking up, an overall increase in disposable income has made it easier for consumers to indulge in such activities. Consumers’ spending power has improved in 2015 backed by improved job prospects, higher wages, lower gasoline prices and renewed optimism, thanks to the housing recovery.
The abovementioned favorable factors should drive growth in the third quarter at the Miami, FL-based company, which provides cruise experiences for travelers with varied itineraries. We expect the company’s top line to be significantly driven by higher passenger ticket revenues. Moreover, the acquisition of Prestige Cruises International (completed late last year) will continue to aid results at Norwegian Cruise Line in the third quarter. The strong booking environment should also drive growth. We expect the company to provide a business outlook for 2016 on the conference call.
However, the strength of the dollar is likely to hurt results in the third quarter. A stronger dollar has certainly impacted the scenario for ex-US customers as far as payment for goods and services is concerned.
Earnings Whispers
Our proven model does not conclusively show that Norwegian Cruise Line is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here as elaborated below.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at 0.00% for the company, as both the figures are pegged at $1.35.
Zacks Rank: Norwegian Cruise Line has a Zacks Rank #1 which increases the predictive power of ESP. However, a 0.00% ESP makes surprise prediction difficult.
We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some other companies in the broader Consumer Discretionary sector that you may want to consider as our model shows these have the right combination of elements to post an earnings beat:
Discovery Communications, Inc. DISCA has an earnings ESP of +2.56% and a Zacks Rank #3. The company is slated to report its third quarter results on Nov 3, before market opens.
DreamWorks Animation SKG Inc. DWA has an earnings ESP of +57.14% and a Zacks Rank #3. The company is scheduled to report its third quarter results on Nov 5, after market closes.
Scripps Networks SNI has an earnings ESP of +1.03% and a Zacks Rank #2. The company is set to report its third quarter numbers on Nov 9, before market opens.
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