New River And Ocean Ships Will Raise Capacity In 2025

Key Takeaways

• Strong advanced bookings and high guest loyalty are driving revenue growth and reducing customer acquisition costs.
  
• Strategic positioning and efficient fleet management contribute to market share sustenance and enhanced earnings potential.
  
• Increased vessel expenses and high debt obligations might limit financial flexibility and profitability amidst growing competition and volatile demand.

Catalysts

Engages in the passenger shipping and other forms of passenger transport in North America, the United Kingdom, and internationally.

• Viking Holdings has strong advanced bookings for 2025, with 88% of capacity already sold and $5.3 billion in advanced bookings, a 26% increase from the same time last year. This is likely to impact future revenue growth positively.
  
• The company plans to grow its core capacity by 12% in 2025 with the delivery of new river and ocean ships. This increase in capacity is expected to drive greater revenue and potentially higher net margins due to economies of scale.
  
• Viking Holdings benefits from high guest loyalty, as seen by a repeat guest rate of 53%, and over 50% of bookings being direct. These factors can lead to higher revenue and improved earnings through reduced customer acquisition costs.
  
• Viking has a significant competitive advantage with docking rights and a strategic position in key markets, which can sustain its market share and contribute to consistent revenue and margin enhancement.
  
• The company's young and efficient fleet, which leads to lower maintenance costs and better fuel efficiency, will allow more capital to be directed towards growth initiatives, thereby potentially increasing future earnings.

Viking Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Viking Holdings's revenue will grow by 14.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.5% today to 20.2% in 3 years time.
• Analysts expect earnings to reach $1.6 billion (and earnings per share of $3.63) by about May 2028, up from $131.8 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $1.8 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.0x on those 2028 earnings, down from 142.4x today. This future PE is lower than the current PE for the US Hospitality industry at 22.6x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.39%, as per the Simply Wall St company report.

Viking Holdings Future Earnings Per Share Growth

Risks

• Increased vessel expenses could strain profitability if rising costs are not offset by higher revenue growth, affecting net margins.
  
• Competition in the river cruise market, especially with new entrants like Royal Caribbean, could pressure market share and yield, potentially impacting revenue.
  
• Given the global uncertainties, demand may fluctuate, as seen in recent booking slowdowns, which could affect future earnings if consumer confidence weakens.
  
• High capital commitments and debt obligations, including the $870 million in ship CapEx and bond maturities, might constrain financial flexibility and cash flow.
  
• Reliance on continuous high guest satisfaction scores and repeat business to drive bookings; any decline in service quality or reputation could adversely impact revenue and profitability.

Valuation

• The analysts have a consensus price target of $51.56 for Viking Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $82.0, and the most bearish reporting a price target of just $44.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $8.0 billion, earnings will come to $1.6 billion, and it would be trading on a PE ratio of 22.0x, assuming you use a discount rate of 8.4%.
  
• Given the current share price of $42.36, the analyst price target of $51.56 is 17.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.