Company Reports

Despite near-term economic and long-term corporate travel demand uncertainty, we expect Sabre to maintain its position in global distribution systems over the next 10 years, driven by a leading network of airline content and travel agency customers as well as its solid position in technology solutions for these carriers and agents. Sabre's 30%-plus GDS air transaction share is the second largest of the three companies (behind narrow-moat Amadeus and ahead of privately held Travelport) that together control about 100% of market volume. Sabre is also a leader in providing technology solutions to travel suppliers.

Sabre’s technology investments and cost initiatives during the past few years are increasingly leading to an improved competitive and financial position. We don’t plan to meaningfully change our $5 fair value estimate and view shares as attractive after digesting results. That said, the consumer landscape is ominous, which could keep shares volatile in the near term.

Narrow-moat companies Amadeus and Accor announced a partnership on June 5, where the former will be implementing its Central Reservation System, or CRS, into the latter. We see this as a clear positive for Amadeus and negative for narrow-moat peer Sabre. Initially, Accor announced a CRS partnership with Sabre in January 2020, which was shelved when the pandemic hit. We believe Accor’s decision to now choose Amadeus speaks to the IT solutions provider having more proof-of-concept after successful CRS implementations with wide-moat companies InterContinental and Marriott. Still, Sabre itself has won marque CRS partnerships with narrow-moat hoteliers Wyndham and Hyatt, showcasing that its IT solutions offering also has validity in the market.

Despite near-term financing costs and long-term corporate travel demand uncertainty, we expect Sabre to maintain its position in global distribution systems over the next 10 years, driven by a leading network of airline content and travel agency customers as well as its solid position in technology solutions for these carriers and agents. Sabre's 30%-plus GDS air transaction share is the second largest of the three companies (behind narrow-moat Amadeus and ahead of privately held Travelport) that together control about 100% of market volume. Sabre is also a leader in providing technology solutions to travel suppliers.

Sabre’s first quarter showed demand and profitability improvement, leading management to increase its 2024 sales and EBITDA guidance near our preprint forecast. We don’t expect a material change to our $5 fair value estimate, leaving shares of this narrow-moat company undervalued.

Narrow-moat Sabre's shares dropped around 10% during March 4 trading, which we attribute to investor concerns about the company’s demand prospects after the travel platform operator announced a small, yet high-cost, debt exchange. Sabre is exchanging $150 million of April 2025 debt at a 4% interest rate for $182.6 million in debt (including $32.6 million in cash used for the earlier retirement of the prior note) maturing August 2026 at a rate between 4.0% and 7.5% (to be dictated by its share price). We see the $30 million-plus in cash used to extend $150 million in debt by a year and a half as costly and perhaps stoking angst over the outlook for a recovery in industry air global distribution system volume. That said, we think Sabre should meet its obligations even under the scenario of very minimum recovery in global air bookings, given the company’s $600 million in cash and our forecast for around breakeven and $247 million in free cash flow to equity in 2024 and 2025, respectively. We don’t plan to change our $5 fair value estimate, leaving shares undervalued. Still, we expect shares to remain volatile until there is more visibility on industry air volume demand and certainty on the cost of credit in the marketplace.

Shares tanked around 25%, as the industry’s air recovery appears set to lag prior expectations, and we have lowered narrow-moat Sabre’s fair value estimate to $5 from $8.60, leaving shares undervalued. We expect shares to remain volatile with heightened corporate travel demand uncertainty.

Despite near-term economic and credit market and long-term corporate travel demand uncertainty, we expect Sabre to maintain its position in global distribution systems over the next 10 years, driven by a leading network of airline content and travel agency customers as well as its solid position in technology solutions for these carriers and agents. Sabre's 30%-plus GDS air transaction share is the second largest of the three companies (behind narrow-moat Amadeus and ahead of privately held Travelport) that together control about 100% of market volume. Sabre is also a leader in providing technology solutions to travel suppliers.

Despite near-term economic and credit market uncertainty, we expect Sabre to maintain its position in global distribution systems over the next 10 years, driven by a leading network of airline content and travel agency customers as well as its solid position in technology solutions for these carriers and agents. Sabre's 30%-plus GDS air transaction share is the second largest of the three companies (behind narrow-moat Amadeus and ahead of privately held Travelport) that together control about 100% of market volume. Sabre is also a leader in providing technology solutions to travel suppliers.

Like last quarter, Sabre shares rose around 20% from oversold conditions, as it once again surpassed sales and EBITDA guidance and as free cash flow inflected positive, which we have noted could serve as a catalyst. Despite management execution, shares are still down about 35% this year even after today's pop, which we think is driven by investor's distaste for debt leverage companies amid a still uncertain economic environment and higher costs of capital. We think this concern is misguided, especially given Sabre's improved liquidity profile. We don't plan to materially change our $9 fair value estimate and see shares of this narrow-moat company as meaningfully undervalued, although action is likely to remain volatile.

Despite material near-term economic and credit market uncertainty, we expect Sabre to maintain its position in global distribution systems over the next 10 years, driven by a leading network of airline content and travel agency customers as well as its solid position in technology solutions for these carriers and agents. Sabre's 30%-plus GDS air transaction share is the second largest of the three companies (behind narrow-moat Amadeus and ahead of privately held Travelport) that together control about 100% of market volume. Sabre is also a leader in providing technology solutions to travel suppliers.

Sabre shares flew 20% higher in early trading on a gradual booking improvement, traction in cost saving efforts, and strategic wins, easing investors' liquidity concerns. We plan to lift our $8.50 fair value estimate toward $9 per share to account for higher air booking fees. We think free cash flow inflecting back into positive territory, along with renewing confidence in management, can provide a catalyst to shares that we view as very undervalued.

Led by leisure, overall travel demand has remained resilient, supporting our long-held view that there is an ingrained human desire to travel. But we are less sanguine on near-term corporate travel after United Airlines CEO Scott Kirby said earlier this month that the United States is currently in a business recession, with COO Andrew Nocella adding that business travel demand has leveled off for the company. This was followed by Delta Air Lines' June 27 investor day presentation forecasting stable business demand into 2024. Further, the risk of softer economic growth during the next year remains, and numerous nontravel consumer-related companies point to strained demand, which we believe is emanating from persistent inflation, tightening credit availability, and a consumer saving rate of disposal income plummeting to 4.8% in the first quarter of 2023 versus the roughly 9% averaged in 2019.

Despite material near-term economic and credit market uncertainty, we expect Sabre to maintain its position in global distribution systems over the next 10 years, driven by a leading network of airline content and travel agency customers as well as its solid position in technology solutions for these carriers and agents. Sabre's 30%-plus GDS air transaction share is the second largest of the three companies (behind narrow-moat Amadeus and ahead of privately held Travelport) that together control nearly 100% of market volume. Sabre is also a leader in providing technology solutions to travel suppliers.

Narrow-moat Sabre’s shares trade at a 70% discount to our $10.50 per share fair value estimate, which we believe is primarily due to liquidity and near-term economic growth concerns (our 2023-25 sales and EBITDA projections are near FactSet consensus). Our base case remains that Sabre will be able to service and refinance its debt obligations, barring a severe and prolonged recession or tightening in credit markets. But we aren’t blind to the fact that the current environment is ominous, as reflected by our Very High Morningstar Uncertainty Rating.

Despite material near-term economic and credit market uncertainty, we expect Sabre to maintain its position in global distribution systems over the next 10 years, driven by a leading network of airline content and travel agency customers as well as its solid position in technology solutions for these carriers and agents. Sabre's mid-30s GDS air transaction share is the second largest of the three companies (behind narrow-moat Amadeus and ahead of privately held Travelport) that together control nearly 100% of market volume. Sabre is also a leader in providing technology solutions to travel suppliers.

Sabre shares retreated a low-single-digit percentage on concerns regarding slower future air bookings growth, which we think is a misguided conclusion. Rather, our takeaway from Sabre’s update is that the demand recovery is progressing as expected and it is gaining share. Further, management announced plans for $200 million in incremental expense savings by 2024, provided detailed 2025 EBITDA guidance of at least $900 million, which was above FactSet consensus of $799 million (but in line with our $933 million forecast), and laid out plans to reduce debt—harmonizing with our existing prognosis. We don’t plan to materially change our $10.50 per share fair value estimate and view shares as meaningfully 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.

Despite material near-term travel demand headwinds driven by the coronavirus and inflation, we expect Sabre to maintain its position in global distribution systems over the next 10 years, driven by a leading network of airline content and travel agency customers as well as its solid position in technology solutions for these carriers and agents. Sabre's roughly 40% GDS transaction share is the second largest of the three companies (behind narrow-moat Amadeus and ahead of privately held Travelport) that together control nearly 100% of market volume. Sabre is also a leader in providing technology solutions to travel suppliers.

While narrow-moat Sabre’s air bookings recovery is pacing in line with our forecast, investors were caught off guard by a law change in Russia, which will have a material impact on total 2023 IT revenue growth and reduce our $12 fair value estimate by around 10%. Although former filings mentioned this risk, we are disappointed that management had not emphasized it in prior investor calls. We understand the frustration investors are voicing regarding the Russian news (even though the event was out of their control), evident in today’s double-digit decline in shares. We see shares as undervalued but think management and shares might remain in the penalty box in the near term.