Investing.com -- Morgan Stanley raised Norwegian Cruise Line (NYSE:NCLH) Holdings to Equal-Weight from Underweight on Friday, citing a more balanced risk-reward profile after recent stock underperformance.
The firm lifted its 12-month price target for the stock to $22, representing about 10% upside from current levels.
In its latest research note, Morgan Stanley highlighted that NCLH has lagged behind its cruise peers—up only 2% over the past year compared to a 49% average gain for Royal Caribbean (NYSE:RCL) and Carnival (NYSE:CCL).
Year to date, NCLH is down 23%, while its cruise peer group has declined 11% and the S&P 500 has fallen 4%.
"The combination of higher financial and operating leverage has likely contributed to a sharper pullback vs peers," Morgan Stanley noted.
They note that the company has struggled to narrow net cruise costs per ALBD and improve Net Yields relative to competitors.
From a valuation perspective, NCLH is trading at ~8.5x 2025E EV/EBITDA, below its pre-pandemic average of ~10x.
The bank acknowledges that while the company has normalized its cost structure, it remains highly leveraged at ~5x net debt/EBITDA in 2025, compared to ~3.0x for RCL and ~3.8x for CCL.
Despite these challenges, Morgan Stanley believes the worst of the underperformance may be behind the stock.
"We are upgrading the stock to EW as our main thesis around not being able to narrow its net cruise costs (relative to Net Yields) has played out and driven the relative underperformance," analysts wrote.
That said, they believe risks remain, particularly in the event of a weaker macroeconomic environment.