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Carnival Stock Soars 20% on Saudi Investment and New Liquidity Assessment

By Rich Duprey - Apr 6, 2020 at 1:22PM

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The cruise line operator took steps to survive the downturn that made its depressed stock look undervalued.

Embattled cruise line operator Carnival (CCL -1.04%) is sailing higher Monday after Saudi Arabia's sovereign wealth fund disclosed a large stake in the company and analysts suggested it has sufficient liquidity to survive through November even if it's unable to sail any ships.

The two new developments sent Carnival's stock soaring almost 20% in morning trading.

A Carnival Dream cruise ship on the water.

Image source: Carnival.

Not quite smooth sailing

The Public Investment Fund, Saudi Arabia's official investment vehicle, disclosed it owns 43.5 million Carnival shares, the equivalent of an 8.2% stake in the cruise line operator. It makes the Saudi government the third largest shareholder. Because the sovereign wealth fund share purchase increased its stake above a 5% threshold, it was required to disclose the holding.

Carnival was also bolstered by the news that even though it's burning through about $1 billion a month, it has plenty of money to survive its cruise ships being idled in port, even under a worst-case scenario.

However, since Wells Fargo analysts see a more favorable scenario developing with at least some of its ships being able to sail again this summer, it foresees Carnival coming out of the coronavirus pandemic in a much better position than many believed. Wells Fargo does see Carnival's profits taking a hit, with operating cash flow turning negative to the tune of about $2.2 billion this year versus a $5.7 billion in positive cash flow last year.

Carnival raised $6.25 billion in debt and equity last week to make it through the downturn. It also suspended its dividend and halted stock buybacks to preserve cash.

 

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool recommends Carnival. The Motley Fool has a disclosure policy.

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