Among the cruise ship stocks bruised by COVID-19's no-sail orders, Royal Caribbean is the one with the potentially best recovery prospects, according to UBS research published today. All major cruise stocks suffered greatly from the pandemic, but the analyst firm says Royal Caribbean's fundamentals make it the cream of the crop, while Norwegian Cruise Line Holdings narrowly edges out Carnival as the sector's "ugly duckling."

Robin Farley of UBS lays out the case mathematically using the cruise lines' enterprise value (EV) and stock dilution created by issuing new shares to supply liquidity. She calculates how much value each company's stock loses from dilution, assuming its overall EV returned to its pre-COVID-19 level (negatives in parentheses):

Cruise Line Issued Shares Share Rebound Price Relative to Pre-COVID
Royal Caribbean (NYSE:RCL) 24% (28%)
Carnival (NYSE:CCL) (NYSE:CUK) 67% (49%)
Norwegian Cruise Line Holdings (NYSE:NCLH) 104% (53%)


Cruise ships docked in the Bahamas on an idyllic day.

Image source: Getty Images.

Based on metrics from Yahoo! Finance, the research note implies that if EV recovered to pre-pandemic levels, share dilution would cause Royal Caribbean to trade at approximately $95, Carnival at $26 to $36, and Norwegian at $28 -- even after a full industry recovery.

Only a considerable boost in underlying enterprise value would allow a return to stable pre-coronavirus peaks, UBS said.

The stocks are already trading close to these levels on COVID-19 vaccine news. With Royal Caribbean now experimenting with its first limited Singapore cruises, a couple of years will reveal whether the cruise lines can grow beyond UBS' projections or become millionaire-makers. Since investor sentiment boosts share value, the stocks will probably beat UBS' thresholds, but the figures illustrate a rebound to record peaks is unlikely.

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