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Why this $11 billion market cap cruise line operator is aggressively buying back its own stock

Brian Sozzi
Editor-at-Large

Whoever said the stock buyback program is such a 2018 story for the markets haven’t taken a dive into Norwegian Cruise Line’s latest earnings call transcript.

Norwegian Cruise Line (NCLH) disclosed in its third quarter earnings report this week that it repurchased $150 million in stock during the third quarter. With the stock slightly lagging the S&P 500 this year despite a strong three quarters to the year for Norwegian, the aggressive buyback activity makes sense.

The company has now returned more than $1 billion via buybacks since the the start of 2018. Definitely not chump change. That tally represents an astounding 9% of Norwegian’s outstanding share count. Norwegian has spent $750 million under an authorization of $1 billion to $1.5 billion to be used by the end of 2020.

Norwegian Cruise Line CEO Frank Del Rio — an industry veteran that knows the space like the back of his hand — says the stock continues to be way too cheap. Hence, it’s full steam ahead on buybacks.

“We are under-appreciated right now, our stock is undervalued,” Del Rio said on Yahoo Finance’s The First Trade. “With all the cash flow we are generating, we think the best use of that cash is to buy back our stock at these ridiculously low prices.”

Morgan Stanley analyst Thomas Allen wrote in a note this week after meeting with management that Norwegian’s free cash flow is “under-appreciated.” Allen rates the stock overweight, or the equivalent of a buy.

Norwegian Cruise Line Holdings President & CEO Frank Del Rio, right, joins applause as he rings the New York Stock Exchange opening bell, Tuesday, Nov. 12, 2019, to celebrate the launch of their newest ship, the Norwegian Encore. (AP Photo/Richard Drew)

Norwegian’s latest earnings support Del Rio’s comments on the stock potentially being undervalued.

On November 7 Norwegian Cruise Line reported third-quarter adjusted earnings of $2.23 a share, beating estimates for $2.16 a share. Earnings were hit by 6 cents a share due to voyage cancellations, itinerary modifications and relief efforts stemming from Hurricane Dorian. Net yields — a key metric for cruise lines — rose 3.9%, ahead of Norwegian’s guidance back in August by 215 basis points.

The company narrowed its full-year earnings outlook to $5.05 a share from $5.00 to $5.10 previously.

The giant cruise line operator said its gross yields rose an impressive 6.4% in the quarter, powered by strong demand for cruises across Europe and the Caribbean. Total sales clocked in at $3.22 billion vs. projections for $3.18 billion.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow him on Twitter @BrianSozzi

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