A first look at cruise-line operator Viking
I often have my readers to thank for putting stocks on my radar...
And of course, I get plenty of potential stock ideas from reading the newspaper. Both of these sources came together last week when reader Joe S. e-mailed me about cruise-line operator Viking (VIK):
Ever take a look at Viking Holdings (VIK)? I'm on a Backroads tour and folks can't stop talking about it – great targeted audience and family controlled.
Meanwhile, a recent Wall Street Journal article on the company also caught my eye...
The article highlights the many ways that Viking is following the playbook laid out by my mentor – Harvard Business School Professor Michael Porter, the guru of competitive strategy.
Porter showed how companies could be successful by not trying to be all things to all people. Instead, companies can find success by focusing on a particular niche. The WSJ article captures how Viking does this. As it notes, the company "likes to say no":
A 16-point list details what isn't allowed on [Viking's] river and ocean ships, including children, umbrella drinks and casinos. Travelers will find few trips through the Caribbean, a popular destination among other cruise operators. And instead of trying to wow travelers with flashy new features, Viking sticks with its classic designs when rolling out new ships.
As the article continues:
Viking executives say the company's strictness on what its vacations will and will not be helps keep ships full in the face of new competition in the river space and a sea of larger, kid-friendly boats teeming with entertainment and rides.
Guests on Viking ships attend lectures about their trip's destinations from resident historians and listen to classical music. Rather than pool parties and waterslides, a Viking cruiser steps into quieter pools and snow grottos, small glass-enclosed rooms filled with man-made snow.
As a result, Viking has been extraordinarily successful. The WSJ article notes that "travelers like the contrarian option"...
As of early August, roughly 96% of availability on Viking's core ocean and river trips was sold for 2025. Around 55% of capacity for next year is already booked. Revenue for the three months ended June 30, at nearly $1.9 billion, was up 18.5% compared with a year earlier.
Viking isn't likely to change its strategy, either...
It's still run by the man who founded the company in 1997, Torstein Hagen. He took the company public in May 2024. But he retained control (along with his daughter, Karine) with a more than 53% economic interest and nearly 90% voting control thanks to a dual-class share structure.
Since going public, the stock has more than doubled:
So... might it still be a buy at these levels?
Let's take a look at the financials today and see what they tell us...
First, I'll note that the financials we have are limited to only four and a half years. That's because Viking was a private company for most of its history.
Let's start with revenue and operating income. After being crushed during the COVID-19 pandemic, you can see that both of these metrics have rebounded strongly:
Given that Viking operates cruise ships, it has high capital expenditures ("capex"). Nevertheless, the company still generates respectable free cash flow ("FCF"). Take a look:
Viking added to its debt to cover FCF deficits during the pandemic. But you can see that the company has been paying it down since then:
Overall, this is a solid picture.
However, I wouldn't want to overpay for the stock given how capital-intensive, cyclical, and competitive this business is. So let's look at valuation...
As of yesterday's close, the company had a market cap of about $27.5 billion. Adding $3 billion of net debt, the enterprise value is $30.5 billion.
Viking closed yesterday at $61.92 per share. And consensus analysts' estimates for earnings are $2.46 per share for this year and $3.18 per share for next year (up 29%). So the stock is trading at about 25.2 times this year's and 19.5 times next year's estimates.
To me, those are fair multiples for Viking – it looks neither overvalued nor undervalued.
I wish I had looked at the stock a year ago, when it was half today's price... but that's water under the bridge.
For now, Viking looks like a better candidate for the "bench." That means keeping an eye on it, hoping for a big pullback.
As always, I welcome your feedback – and the potential stock ideas.
Of course, I can't guarantee I'll dig into every idea I receive from readers. And I can't give personalized investment advice. But keep the stock ideas coming – send me an e-mail by clicking here.
Best regards,
Whitney