Bernstein reduces Sabre stock outlook, citing cyclical risks and strained financial position
On Tuesday, Sabre (NASDAQ:SABR) Corporation (NASDAQ:SABR) saw its stock rating downgraded by Bernstein from Market Perform to Underperform, with a new price target set at $3.00.
The firm cited several reasons for the negative outlook, including the company's heavy reliance on the slowing Global Distribution System (GDS) business, which represents approximately 70% of its revenues. Sabre's geographic focus on North America, a region experiencing rapid technological changes, is also expected to pose challenges for the company's volume growth and unit economics.
Sabre's Air IT business, which is largely dependent on a small number of major customers, with American airlines accounting for about 35% of its volumes, has faced significant losses in recent years. The losses include contracts with Etihad, Hawaiian, ITA, and Vietnam Airlines. Compared to its competitor Amadeus (BME:AMA), Sabre invests roughly one-third in product development, which is anticipated to make it difficult for the company to close the product gap.
The firm also highlighted concerns regarding Sabre's financial health, noting that the company's balance sheet is under strain. The interest coverage ratio was less than 1x in 2023, and it is projected to be close to 1x in 2024, including payment-in-kind (PIK) interest.
Despite efforts to improve earnings before interest, taxes, depreciation, and amortization (EBITDA) through cost restructuring and reducing headcount, Bernstein remains cautious. They suggest that the next industry downturn could occur before Sabre successfully addresses its significant net debt, which exceeds $4 billion.
In other recent news, Sabre Corporation reported a positive Q3 2024 performance and an optimistic outlook for the future. The company's Q3 earnings call revealed a 3% year-over-year revenue growth, reaching $765 million. Distribution revenue and Hospitality Solutions revenue saw increases of 5% and 7% respectively. The company's Adjusted EBITDA for the same quarter stood at $131 million, marking a 19% increase from the previous year.
Sabre also shared its projections for Q4 2024, expecting revenue of approximately $715 million and adjusted EBITDA of around $115 million. The company's full-year 2024 revenue is anticipated to be about $3.03 billion, with an adjusted EBITDA of $515 million. Furthermore, Sabre aims to achieve over $700 million in adjusted EBITDA and more than $200 million in free cash flow by 2025.
Despite a decline in IT Solutions revenue, the company maintains a positive outlook, focusing on strategic investments and cost management to enhance shareholder value. With consistent booking trends and an expected increase in revenue per booking in Q4, Sabre remains confident in its financial trajectory.
InvestingPro Insights
Recent InvestingPro data provides additional context to Bernstein's downgrade of Sabre Corporation (NASDAQ:SABR). The company's market capitalization stands at $1.46 billion, reflecting its current market position. Despite Sabre's challenges, it maintains impressive gross profit margins of 59.26% for the last twelve months as of Q3 2023, which aligns with one of the InvestingPro Tips highlighting the company's strong gross profit margins.
However, the financial strain mentioned by Bernstein is evident in other metrics. Sabre's P/E ratio is negative at -7.97, indicating that the company is not currently profitable, a point reinforced by another InvestingPro Tip. The company's significant debt burden, as noted in the article, is also flagged as a key concern in the InvestingPro Tips.
On a more positive note, Sabre has shown a strong return over the last three months, with a price total return of 26.76%. This recent performance suggests that despite the challenges outlined, some investors may see potential in the company's efforts to restructure and improve its financial position.
For investors seeking a more comprehensive analysis, InvestingPro offers 6 additional tips for Sabre Corporation, providing a deeper understanding of the company's financial health and market position.
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