Sabre Changes Pilots on Its Journey to an Enhanced Cloud-Based Infrastructure; Shares Undervalued

We maintain narrow-moat Sabre’s Standard capital allocation rating, after it announced current president Kurt Ekert will take the CEO reins from Sean Menke this April. In our view, Menke has made progress in making Sabre a more relevant and innovative participant in the travel ecosystem since becoming CEO in 2016. Benefiting from his prior CEO and executive roles at a handful of air carriers, Menke has led Sabre’s transformation toward a cloud-based infrastructure (providing cost and innovation benefits) from a mainframe technology that supported too many versions of too many products. We think Sabre keeping Menke on as executive chair of the board speaks to his ongoing value. Ekert was bought on as Sabre’s president in January 2022 to help with its technology revitalization. While we value Menke’s experience in the airline industry, we see Ekert’s travel expertise as even stronger. Ekert’s time as CEO at Carlson Wagonlit saw the company execute a digitalization transformation, while his COO role at peer Travelport occurred during a time when the operator was fine-tuning its financial position in front of its 2014 IPO. Ekert was an executive at Orbitz (owned by narrow-moat Expedia) and Continental Airlines, which we think provides him with a well-rounded view of the travel ecosystem. We believe Ekert will be tasked to complete the technology transition to the cloud in 2025, which Menke started upon in 2017. We continue to view this initiative as being successful, leading to adjusted EBITDA and adjusted EPS of $1 billion and $1.27, respectively, in 2025. Should this revitalization prove effective, we see shares as undervalued relative to our unchanged $10.50 fair value estimate. That said, we think shares are likely to remain volatile in the near term, given an ongoing bumpy, yet gradual, recovery in business travel and perhaps some disappointment around an ineffective communication of a change in Russian law that meaningfully impacts its 2023 results.