The cruise sector has been all but levelled by Covid-19 but should still make good money off unwavering demand for ocean-based vacations, according to a prominent analyst.
The pandemic has indeed brought the entire industry of more than 400 ships to a standstill amid no revenue and hefty expenses, but UBS' Robin Farley said consumer appetite is still alive and well.
"As an almost entirely fixed-cost business, cruise lines are able to bring increases in ticket price to the [earnings per share] and returns line," she wrote in a client note.
"With cruise yields continuing to grow, the industry is benefiting from new millennial demand adding to the Baby Boomer demographic that continues to drive growth."
She said millennial preference for collecting experiences over objects should play a lead role in boosting yield.
"With measured supply growth and with early days of improved technology enhancing revenue management, we believe cruise operators could still deliver strong yield growth over the medium to longer term, though coronavirus could temporarily impair earnings, which means 2020 might not represent underlying earnings outlook for the cruise operators," she said.
UBS gave Arnold Donald-led Carnival Corp's shares a neutral rating and $13 price target based on being 14 times more valuable than the bank's 2022 earnings-per-share guidance.
It also rated Frank Del Rio-led Norwegian Cruise Line Holdings' stock at neutral and gave a $12 price target for the same reasons while still reviewing the shares of Richard Fain-led Royal Caribbean Cruises.
The "Big Three" cruise majors, which together cover about 80% of the worldwide market, all saw modest losses on Wall Street through early afternoon trading on Thursday.
Carnival shares dipped 5.1% to $16.36, while Royal Caribbean's equity value slid 1.3% to $53.58 and Norwegian's shares declined 14.8% to $16.74.
