By Teresa Rivas

"The sea has never been friendly to man," wrote sailor-cum-author Joseph Conrad. That has often been true of cruise stocks, as well, but Viking Holdings looks like an exception.

Viking has had a choppy couple of weeks. Shares of the Viking Cruise owner -- famous for its river voyages -- sold off despite a better-than-expected first quarter, as investors fretted that bookings could be slowing in the face of economic uncertainty. The shares took another hit after the company announced a secondary offering -- just over a year after its initial public offering. At a time of trade uncertainty, stock market volatility, and recession worries, that has made some investors queasy, particularly given the industry's reputation for being cyclical.

Yet far from being a good time to jump ship, the selloff seems like a buying opportunity.

"Viking is our favorite of all the cruise companies....It has far and away the best-in-class balance sheet, return on invested capital, and capacity expansion," says Jodi Love, portfolio manager of the T. Rowe Price Small-Mid Cap exchange-traded fund -- factors that she argues will drive industry-best profitability growth over the next three to five years. "Viking is well positioned to win within the cruise industry and the broader travel market" because it caters to a very affluent and extremely loyal customer base that books directly with the company, she notes.

Much of that was on display in its recent upbeat earnings, but due to the unsettled macro backdrop, investors were hoping for more clarity and reassurance. Instead, management's tone was cautious, implying that the rate of bookings may have slowed.

Nonetheless, there were also encouraging numbers -- 92% of 2025 and more than 35% of 2026 capacity was already sold after Viking wrapped up a record "wave season" (the cruise industry's crucial first-quarter booking period). Likewise, pricing remains strong for cruises in general, and particularly for Viking's more upscale sailings.

"We love companies that are riding the silver tsunami" of baby boomer spending, says Mike Smith, a portfolio manager at Allspring Global Investments. "This is a very affluent demographic that makes up 25% of the population but owns half the wealth...and they are still spending."

Given that the stock is up more than 80% since its IPO, it isn't surprising that it would pull back on conservative management commentary. Yet consensus estimates still call for best-in-industry growth, with earnings per share climbing more than 30%, to $2.42, this year and nearly 26%, to $3.06, in 2026. That's a faster clip than its three main peers -- Carnival, Norwegian Cruise Line Holdings, and Royal Caribbean Group -- in either year. At 14.5 times next year's earnings, the stock seems attractively priced.

It's trading roughly on par with Royal Caribbean but "could grow 50% to 100% faster on a percentage basis," says Lance Cannon, partner and research analyst at Hood River Capital Management. "If anything, you could argue one of these two is mispriced, and I think that is Viking. It should command a premium."

That's because the company's expertise in providing immersive experiences with an English-speaking crew is second to none -- and it's expanding beyond the European river cruises on which it built its reputation. Viking sailings now include ocean voyages and visit all seven continents.

Cannon says that earnings estimates could wind up being conservative, as pricing remains strong across the cruise industry and Viking boasts a wealthy base of repeat customers. Vacationers who sail with Viking try other cruise companies "but come back every time," he notes, and that while wealth destruction from stock market gyrations is always a worry, "the vast majority of these people aren't going from riches to rags," thanks to diversified investments.

The average analyst price target of more than $51 for the stock implies 15% upside from Thursday's close of $44.34.

As for the secondary offering announced this week, that doesn't seem cause for concern, either, in light of the longstanding pattern of more shares coming up for grabs after a stock debuts. "You can almost set your watch to the timing of some of these," says Allspring's Smith.

None of the concerns about Viking look like deal breakers, given its high repeat customer rate, solid cash position, and fleet of new ships coming on-line in coming years. T. Rowe's Love argues that Viking would probably hold up best among the major cruise companies in a downturn because of these factors and its differentiated product.

In fact, the company's ability to execute well during times of economic feast or famine is what makes Cannon confident about Viking. "The companies that continue to grow in the industry regardless of macro tend to be long-term winners, and Viking has the opportunity to be one," he says.

It should be smooth sailing ahead for Viking customers and investors alike.

Write to Teresa Rivas at teresa.rivas@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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May 30, 2025 01:30 ET (05:30 GMT)

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