Sabre Earnings: Improving Demand, Cost Savings, and Management Execution Catalyze Undervalued Shares
Sabre SABR 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.
Second-quarter sales and EBITDA of $738 million and $72 million, respectively, surpassed management guidance for $700 million and $45 million. Sales were helped by air bookings improving to 62% of 2019′s level versus 61% last quarter. We still expect a 62% and 67% recovery level in 2023 and 2024, respectively, based on surveys and increased airline capacity. Sales were materially aided by booking fees that averaged $5.87, up 10% from last year, driven by cross-border mix. Here, we expect to lift our 2023 forecast to 6% growth from 1%, as we believe the mix shift will endure. Management tightened its 2023 revenue guidance to $2.9 billion-$3.0 billion from $2.8 billion-$3.0 billion; we plan to adjust our $2.84 billion estimate to within the new range.
Quarterly adjusted EBITDA margins traveled up to 9.9% from 3.7% last year, stoked by management’s execution on reducing labor costs. Even so, Sabre is not pulling back on its transition to the cloud, which remains on track to reduce $150 million in technology costs by the end of 2024. As a result, management lifted its 2023 EBITDA target to around $340 million from $300 million-$320 million, while reiterating its 2025 goal of at least $900 million in EBITDA and $500 million in free cash flow.
A reservation system win with Hyatt increases our conviction in narrow-moat Sabre’s ability to hit its 2025 targets. Importantly, Sabre now thinks hospitality wins can provide $50 million of its total company $150 million 2025 strategic win guidance, up from around $23 million prior.
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