Sabre Earnings: Near-Term Sales Slightly Weaker, but Intermediate-Term Growth Prospects Intact

Key Morningstar Metrics for Sabre

• Fair Value Estimate: $5.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Very High

What We Thought of Sabre’s Earnings

Shares of Sabre SABR fell over 10% during Oct. 31 trading as third-quarter sales growth of 3% missed our 5% estimate and fourth-quarter revenue guidance for a 4% lift was below our 6.5% forecast. The main disappointment was Sabre’s IT solutions (18% of sales in the quarter) revenue declining 5%, compared with our prognosis for a 3% lift, as prior migrations off its platform continued to impact results. As a result, we plan to reduce our 2024 revenue growth to 4% from 5% previously and adjusted EBITDA toward $515 million from $530 million.

Still, we don’t expect to change our 2025 forecast for 6% sales growth and EBITDA margins of more than 20%, up from 12% in 2023, as recent wins in Sabre’s distribution business (72% of sales) and cost savings from migrating operations to the cloud take hold. Overall, we plan to reduce our $5 per share fair value estimate by a low-single-digit percentage, leaving shares undervalued.

We still see IT solution sales averaging around 9% annual growth during 2024-33 as near-term transitory headwinds dissipate and new wins are realized. Our forecast is partly pinned by Sabre’s new Mosaic AI cloud-based open-architecture offering, which lets suppliers showcase and update customized content. In this vein, Virgin Australia is an early adopter, and we expect other wins over the coming years.

Sabre’s core distribution segment saw sales growth of 5%, slightly outpacing our 4% estimate, driven by revenue per booking growth of 1% (1% decline forecast) and air booking volumes increasing 3% (4% estimate), aided by a 3%-4% lift in corporate travel. Encouragingly, air booking volumes accelerated from the 1% decrease last quarter and represented 63% of 2019′s level versus 61% three months ago. Further, Sabre’s air volume share increased about 50 basis points to 34.7%, helped by recent wins with agencies. We expect momentum to continue into 2025, with air volumes accelerating to roughly 5% growth.