In a humbling but necessary move, Carnival Cruise Line (NYSE:CCL) (NYSE:CUK) completed a secondary stock offering to raise $500 million. The world's largest cruise line was initially hoping to sell as much as $1.25 billion worth of stock, but reduced it to $750 million before settling for what it was able to secure. 

Carnival had to settle for a price of $8 for the freshly minted shares. This is a substantial discount to its Tuesday close of $13.17, and 89% below the all-time high it established two years ago. If Carnival is worth $8 a share, one has to wonder what smaller rivals Royal Caribbean International (NYSE:RCL) and Norwegian Cruise Line (NYSE:NCLH) are worth. Let's take a deeper dive into this battered and potentially oversold industry.

The P&O Pacific Jewel sailing on a clear blue sea.

Image source: Carnival.

Uncharted waters

Carnival didn't just raise $500 million this week. It also sold $1.75 billion in convertible notes and raised a better-than-expected $4 billion in secured bonds yielding nearly 12%. With more than $6 billion raised through Wednesday's financing moves, Carnival has enough liquidity to get through this interruption. It remains to be seen where consumer appetite for cruising will stand when ships start sailing again, but Carnival now has the money it needs to get to that point. It had to suffer a lot of dilution through the discounted stock and convertibles -- and that 12% yield is going to be a bear in this environment -- but hey, it's safe to book a Carnival cruise for next year now. 

For investors, the real question is where Royal Caribbean and Norwegian Cruise Line stocks should be in light of Carnival's marked-down secondary offering. If the market feels comfortable buying new shares at $8, that represents a market cap of $5.5 billion for Carnival -- or an enterprise value of $16.5 billion based on its balance sheet when the year began.

Royal Caribbean's enterprise value currently stands at $17.5 billion, an odd look for a cruise company smaller than Carnival. The much smaller Norwegian Cruise Line commands an enterprise value of $8.8 billion as of Wednesday's close. 

In most industries the market leader is the one commanding a premium valuation to its smaller rivals, but we're seeing the inverse of that here. Carnival is fetching a lower trailing revenue and EBITDA multiple than Royal Caribbean and Norwegian Cruise Line according to data provided by S&P Global Market Intelligence.

Cruise Line Enterprise Value to Revenue Enterprise Value to EBITDA
Carnival 0.8 3.2
Royal Caribbean 1.6 4.6
Norwegian Cruise Line 1.4 4.6

Source: S&P Global Market Intelligence. 

The disparity in valuations would suggest that Royal Caribbean and Norwegian Cruise Line have some near-term downside here or that Carnival shares will close the gap by moving higher. Thankfully for Carnival's peers, there are some good reasons for the loftier gap. Royal Caribbean and Norwegian Cruise Line have been growing their revenue faster, and Royal Caribbean's margins are stronger than the competition's. 

There will be challenges for the cruise lines. The trailing results we are using are obsolete. However, it's fair to say that if the market thinks that Carnival is worth $8 -- and it's a little higher than that as of Wednesday's close -- Royal Caribbean and Norwegian Cruise Line are fairly priced as well where they are now. Carnival has more than three times the shares outstanding of its fellow cruise lines, explaining why the stock price itself is higher than $8.

The hits on the industry's reputation and consumer preparations for a recession will weigh on the near-term fundamentals, and we still haven't seen how desperate Royal Caribbean and Norwegian Cruise Line will be when it's their turns to pass the offering basket around. It will take time for these companies to get back to where they were last year, but the stocks have clear upside at current levels.