In this week’s piece we discuss our thoughts on 1) H’s reported interest in Xenia’s Kimpton properties, and how that could tie into a potential Grand Hyatt Seoul sale; 2) MGM’s reported interest in selling MGM Grand packaged with MGP’s Mandalay Bay; and 3) our view on NCLH following its Encore event this week. Lastly, if you missed our webcast this week please check out the replay or the slides. In the webcast we touched on several important factors for our group coming out of earnings season with 35 slides.
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NCLH hosted a three-day event (Monday-today) onboard their new Norwegian Encore ship. Overall the event seemed positive to us, as you would expect, and we’ll discuss key themes with our thoughts in the note.
Our coverage wrapped up 3Q earnings season last week, and later this week we plan to host a webcast discussing key themes, top ideas, and catalysts coming out of earnings (more details to come). For now, in this week’s piece we provide a summary of earnings, including consensus estimate changes post reports, stock reactions, and our view on each stock and whether we are more constructive or less constructive coming out of earnings.
NCLH reported 3Q this morning (11/07/19), and it was a solid report, in our view. The stock opened nearly 4% higher, but then traded down as low as nearly -4% by the end of the call and has now settled flattish in a good tape, we think because of higher costs and 2020 yield comments.
This morning (11/07/19) NCLH reported 3Q EPS ex-items of $2.23, which was better than the prior guide of ~$2.15, consensus of $2.16 and our $2.15 estimate, despite a $0.06/share headwind from Hurricane Dorian. NCLH also beat its constant currency net yield guide by 215bp. This was the largest quarterly beat on net yields in two years, and it follows slight net yield misses by both CCL and RCL.
About half of our coverage has now reported earnings, and in this week’s piece we discuss some read-throughs for those set to report this week. Specifically, we’ll discuss five points: 1) our group is generally responding well to reports that haven’t been great; 2) read-throughs to NCLH from RCL’s report; 3) read-throughs to VAC from HGV and WYND reports; 4) we back into implied Vegas results for CZR and WYNN now that we have industry data and competitor reports, and it appears CZR had a strong quarter in Vegas; and 5) we back into implied Macau results for WYNN and Galaxy now that we have industry data and competitor reports.
EPS ex-items of $4.27 was in line with our estimate, but below consensus of $4.31. Excluding the hurricane RCL would have beat their prior guidance by $0.05. So, the quarter itself was not “great” relative to what we’ve become used to with RCL, but the guidance and the booking commentary was positive and reassuring, in our view.
In recent weeks bunker spot fuel prices have meaningfully declined, specifically for the high-sulfur fuel, while forward prices have not declined as much over this time. The decline seems likely due to IMO 2020. Meanwhile, FX has also strengthened. Lower fuel and stronger FX are positives for cruise lines. Despite these positive developments, cruise stocks still have not performed great. In this week’s piece we discuss, and we also raise our cruise line estimates on this dynamic, which has the biggest impact for CCL.
In this week’s piece we highlight work from Wolfe’s Technical Analyst Team. Our technical team provided us their technical outlook for the stocks under our gaming, lodging, and cruise coverage, and we share their results along with how it ties to our fundamental views.
In this 40-page report we preview 2020, as well as upcoming earnings season, and we look at key themes for the stocks in our coverage. We’re also introducing quarterly 2020 estimates and annual estimates through 2023, and our target prices now extend to YE20 (Ex. 3). Valuations for our group remain well below prior peaks (Ex. 1), and the stocks are trading at historic lows versus consumer staples (Ex. 2).
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