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Why Expedia Stock Jumped Today

By Evan Niu, CFA - Mar 19, 2020 at 1:32PM

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Analysts defend the travel booking specialist as it beefs up its balance sheet.

What happened

Shares of Expedia (EXPE 1.01%) have jumped today, up by 6% as of 12:20 p.m. EDT, after a couple of Wall Street analysts expressed confidence in the travel booking specialist's ability to weather the COVID-19 downturn. The company also said it was drawing a credit line to beef up its cash position in preparation.

So what

Analysts at Suntrust and Credit Suisse both reiterated buy (or equivalent) ratings on Expedia stock while adjusting price targets to accommodate for recent market volatility. Suntrust reduced its price target from $172 to $140, while Credit Suisse cut its estimate from $161 to $105. Both targets represent considerable upside to current prices of around $49.

Coronavirus on a stop sign at an airport

Image source: Getty Images.

Credit rating agency Moody's affirmed Expedia's debt rating of Baa3, which is about three notches into junk territory, while cutting its outlook from positive to negative due to uncertainties around the global travel industry amid the coronavirus pandemic. The warning is more applicable to bond investors but can still provide useful context to equity investors.

"Expedia Group's credit profile is significantly pressured by the recent sharp decline in global airline and hotel bookings and Moody's expectation that travel bookings will further deteriorate over at least the next two months," according to Moody's. "There are further downside risks in the event travel demand remains depressed beyond the first half of 2020 in a scenario in which COVID-19 is not contained."

Now what

Expedia disclosed in a regulatory filing that that it drew $1.9 billion from an existing revolver that provides up to $2 billion in credit. As of the end of 2019, that credit facility was "essentially untapped," and the travel tech company had $4.6 billion in cash on the balance sheet at the time.

The company withdrew its 2020 guidance last week due to the outbreak.

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