On Tuesday, Viking Holdings (NYSE:VIK) received an upgrade in its stock rating by Morgan Stanley (NYSE:MS), from Equalweight to Overweight. The firm also increased the price target for the cruise operator to $49.00, up from the previous target of $37.00. The revised price target represents approximately a 10% upside potential from the current levels.
The upgrade follows Viking Holdings' recent market performance, which, despite a rally, has not kept pace with its industry peers. The company's shares have risen but have still trailed behind competitors such as Royal Caribbean (NYSE:RCL), Norwegian Cruise Line (NYSE:NCLH) Holdings, and Carnival Corporation (LON:CCL) over the past three months, with gains of around 30% compared to their 44%, 76%, and 66% respectively, and the S&P's 13% increase.
Morgan Stanley's analysis points to Viking Holdings' more attractive relative valuation, noting that the company's valuation has become more aligned with its peers, trading at approximately 11 times its estimated 2026 enterprise value to EBITDA and around 14 times its price to earnings ratio.
This is despite Viking Holdings boasting higher returns on invested capital, approximately 20% versus the peer average of about 11%, as well as anticipating faster unit growth between 2023 and 2026, at 30% compared to peers' estimated 12%. Additionally, Viking Holdings operates a younger fleet, averaging around 6 years old, in contrast to peers' average of approximately 13 years.
The firm suggests that three main factors are likely to contribute to a re-rating of Viking Holdings and generate alpha: strengthening demand, improving gross margins, and the initiation of capital return to shareholders.
The analyst also highlighted that Morgan Stanley's EBITDA estimates for Viking Holdings in 2025 and 2026 are 8% and 11% above the consensus, respectively, which could signal potential earnings beats and act as a catalyst for the stock's revaluation.
In other recent news, Viking Holdings Ltd has reported significant milestones and strategic moves in the travel industry. The company's recent financial results disclosed gross and net revenues of $718 million and $495 million, respectively, with operating losses recorded at $70 million.
Viking has also expanded its fleet with the introduction of the Viking Sobek on the Nile River, and the Viking Hathor, marking its re-entry into the Chinese market with the inaugural journey of the Viking Yi Dun from Shanghai to Hong Kong.
In addition to these developments, Viking has announced a secondary public offering of 30 million ordinary shares held by existing shareholders, led by BofA Securities and J.P. Morgan. The company has also unveiled a series of six new Asia itineraries for 2025, and plans to add four more ships to its Nile fleet by 2026, bringing the total to 10 vessels.
Analysts have shown confidence in Viking's prospects. Wells Fargo (NYSE:WFC) maintained an Overweight rating and raised its price target to $39.00, while Barclays (LON:BARC) initiated coverage with an Overweight rating. Other firms including BTIG, Stifel, JPMorgan, Redburn-Atlantic, and UBS also initiated coverage with positive ratings. These are the recent developments for Viking Holdings Ltd.
InvestingPro Insights
Viking Holdings' recent market performance and Morgan Stanley's upgrade are further supported by real-time data from InvestingPro. The company's stock has shown significant momentum, with a 16.64% return over the last month and an impressive 70.27% return year-to-date. This aligns with Morgan Stanley's observation of Viking's rally, albeit at a slower pace than its peers.
InvestingPro Tips highlight that Viking Holdings is trading near its 52-week high, with its price at 98.51% of the 52-week high. This corroborates the stock's strong performance and the potential upside suggested by Morgan Stanley's new price target. Additionally, the company's position as a prominent player in the Hotels, Restaurants & Leisure industry supports the analyst's positive outlook on its growth prospects.
While Viking Holdings is currently not profitable over the last twelve months, with a P/E ratio of -16.0, InvestingPro Tips indicate that analysts predict the company will be profitable this year. This projection aligns with Morgan Stanley's optimistic EBITDA estimates for 2025 and 2026, which are above consensus.
For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips for Viking Holdings, providing a deeper understanding of the company's financial health and market position.
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