Carnival Stock soars 20% on Saudi investment and new liquidity assessment

Cruise operator in difficulty Carnival (NYSE: CCL) sails higher on Monday after Saudi Arabia’s sovereign wealth fund revealed a large stake in the company and analysts suggested it had sufficient liquidity to survive until November, although it was unable to to navigate ships.

The two new developments pushed Carnival shares up nearly 20% in morning trading.

Image source: Carnival.

Not quite smooth navigation

The Public Investment Fund, Saudi Arabia’s official investment vehicle, revealed that it held 43.5 million Carnival shares, the equivalent of an 8.2% stake in the cruise line. This makes the Saudi government the third largest shareholder. Since the purchase of shares of the sovereign wealth fund raised its stake above a 5% threshold, it was required to disclose the stake.

Carnival was also bolstered by the news that even though it spends around $ 1 billion a month, it has enough money to survive having its cruise ships tied up in port, even in the worst of times. case.

However, given that Wells Fargo analysts see a more favorable scenario developing with at least some of its ships able to sail again this summer, he predicts Carnival will emerge from the coronavirus pandemic in a much better position than many do. thought. Wells Fargo sees Carnival’s earnings take a hit, with negative operating cash flow of about $ 2.2 billion this year, compared to $ 5.7 billion of positive cash flow last year.

Carnival raised $ 6.25 billion in debt and equity last week to get through the crisis. It also suspended its dividend and stopped share buybacks to preserve its liquidity.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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