Norwegian Cruise Line Is Adding 5 New Board Members and Launched Norwegian Luna. Here Are 3 Tailwinds Behind the Cruise Line Giant.

While the cruise industry is very much alive, well, and recovering after the pandemic, Norwegian Cruise Lines (NYSE: NCLH) has been a notable laggard among its peers.

But could this ship be making a 180-degree turn to better seas ahead?

Activist hedge fund Elliott Management, which takes stakes in struggling companies and advocates for changes, invested in Norwegian back in February. In a lengthy presentation, Elliott lambasted past management and the board and requested a seat at the table.

The optimism following Elliott's presentation initially lifted shares; however, Norwegian's lackluster fourth-quarter earnings report and guidance, combined with the war in Iran, subsequently sent shares downward once again.

Now at a much cheaper share price, here are three reasons the stock could rise toward Elliott's $56 price target -- which would amount to a 200% gain from here.

3 big positives on deck

The first big positive is that Norwegian has acquiesced to Elliott's key demand. On March 27, the company announced that it would appoint five new board members, while four sitting board members announced their retirement. Elliott is very likely to have selected the five new members. They included two executives from asset managers Bain Capital and Hepco Capital Management, as well as three former high-level executives from British Airways, CDK Global, and Disney.

In the press release, Elliott Partners John Pike and Portfolio Manager Bobby Xu stated, "As NCLH's largest investor, we see the potential for significant value creation ahead under John's leadership, and we believe the experience and credibility of this newly appointed Board will help restore investor confidence and return the Company to best-in-class financial performance."

The second factor relates to the first, specifically CEO John Chidsey's incentive structure, which the new Elliott-backed board of directors is likely to have formulated. Chidsey was appointed as Norwegian's new CEO just days before Elliott disclosed its position, so the board may have seen Elliot's activist campaign coming. Thus, Chidsey may already have been the "change" candidate, so to speak. So it makes sense that Elliott is keeping Chidsey on as CEO and also making him chairman of the board, while Elliott's Board appointees will keep close watch.

The vast majority of Chidsey's new compensation structure will come in the form of stock, about $48 million worth over four years, 60% of which vests annually, with the other 40% in the form of performance-based units dependent on the four-year total shareholder return. Chidsey has the potential to make double the performance-based grant if Norwegian's stock compounds at a 20% average annual growth rate over the next four years, so he has incentive to make things work.

Aside from that, the third tailwind is that of the cruising industry itself. While Norwegian's 2026 guidance sent shares tumbling, a new CEO would be likely to give himself relatively conservative numbers he can beat. Norwegian will soon take on a new ship, Norwegian Luna, in March. It will take some time for the new ship to ramp up profitability, but once it does, it should give profit a boost, as it's a brand-new top-of-the-line vessel.

Image source: Norwegian Cruise Lines.

Norwegian is a high-risk, high-upside play

The cruise industry appears to be a secular growth story, as voyages are becoming increasingly popular for their simplicity and relative cost versus hotels. Moreover, since there is room for improvement at Norwegian, a "self-help story" could go a long way off its current depressed valuation.

However, Norwegian is still dealing with high debt, at 5.2 times EBITDA (earnings before interest, taxes, depreciation, and amortization). But while that debt load adds risks to the story, it also may add to future upside, if debt is paid down and the perception of risk diminishes.

Investors should monitor this turnaround story in 2026.

Billy Duberstein and/or his clients have positions in Walt Disney. The Motley Fool has positions in and recommends Walt Disney. The Motley Fool has a disclosure policy.