On Tuesday, Morgan Stanley (NYSE:MS) initiated coverage on Viking (NYSE: VIK) with an Equalweight rating and a set price target of $31.00. The firm highlighted Viking's significant growth over the past approximately 25 years, evolving from a modest four river vessel operation to a fleet of over 90 ships spanning River, Ocean, and Expedition segments.
The cruise and travel company's strategy of targeting the premium and luxury market, specifically the 55+ US consumer segment, has been underscored as a key driver of its success. Viking's smaller fleet size, in terms of berths, combined with its dominant position in the River market, contributes to higher net yields and return on invested capital (ROIC). The company's net yields are estimated at around $475, compared to a weighted average of approximately $210 for competitors Royal Caribbean (NYSE:RCL), Carnival Corporation (NYSE:CCL), and Norwegian Cruise Line Holdings (NYSE:NCLH). Viking's average ROIC stands at about 18%, surpassing the peer average of around 10%.
Viking has also been recognized for leading the cruise sector in capacity, revenue, and absolute EBITDA growth when adjusted for available lower berth days (ALBD), with a positive change of 2.5% from 2019 to 2023, in contrast to the average decline of around 3% among its peers.
The company's future growth is anticipated to be fueled by new ship orders, which are expected to contribute to top-line growth. Additionally, the utilization of Viking's direct marketing model is projected to enhance scale benefits, potentially leading to margin expansion and even stronger growth in the bottom line.
However, the report also notes that Viking's stock currently carries a premium valuation at approximately 10.2 times its projected 2025 EBITDA, compared to the average of about 8.7 times EBITDA for its peers. The firm also cautions that Viking's high operating leverage and sensitivity to macroeconomic factors result in a wide range of potential outcomes in bullish or bearish market scenarios.
InvestingPro Insights
Morgan Stanley's recent coverage of Viking (NYSE: VIK) emphasizes its impressive growth and strong position in the luxury cruise sector. Supporting this perspective, InvestingPro data reflects a robust revenue growth of 48.32% over the last twelve months as of Q4 2023, indicating a significant expansion compared to its competitors. Additionally, Viking's gross profit margin stands at an impressive 40.82%, underscoring the company's ability to maintain profitability in its operations.
Looking at the stock's performance, an InvestingPro Tip suggests that Viking's shares are trading near their 52-week high, with the price at 98.25% of this peak. The company's stock has also seen a strong return over the last month, with a 13.72% increase, which may attract investors looking for recent positive momentum in the market.
For those considering an investment in Viking, it's worth noting that analysts are optimistic about the company's future profitability, with predictions of Viking turning profitable within the year. This aligns with Morgan Stanley's expectations for the company's continued growth and expansion. For more in-depth analysis and additional InvestingPro Tips, investors can explore further at https://www.investing.com/pro/VIK. Moreover, interested investors can take advantage of an exclusive offer using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, which includes 7 additional InvestingPro Tips to guide investment decisions.
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