Sabre Corp. (SABR) is on the Hedgeye Technology Best Ideas List as a LONG.
Overview:
Sabre had a strong quarter on overall airline volumes. Our data suggests 1Q18 TN volume sustained ~5%+ Y/Y aggregate volumes. Breaking down the customers and geographic segments, we get 1Q18 Travel Network revenue for Sabre of ~$715-720MM, versus Street of $701MM.
Strong passengers boarded environment in 1Q18: Notwithstanding the lagging impact of share loss from 2017, we see a stronger than seasonal result in 1Q18 for PB, putting combined AHS revenue at ~$265MM, versus Street at $249MM.
The net is that we are directionally higher than Street revenue for 1Q18.
Why we like Sabre:
- New technology makes Sabre more competitive in core GDS which becomes material in 2H18 bake-offs and beyond; and also helps offset TN margin erosion exiting 2018; as Sabre eventually shifts more volume to the new datacenter technology and away from legacy there will be a chance for GM% to grow in 2019-2021
- New software architecture modernizes the AS division, accelerates time to market for new product, somewhat changes the game for monetization away from binary ‘big money’ reservations wins and toward a suite of software solutions
- New management team working to change the culture, trying to make product development more nimble, and generally compete and win in the marketplace with promising direction
- The company has talked about a d-d% growth CAGR for FCF from 2019 through 2021…there is no way that is in the stock today. If it was, the stock would be ~$28 on its way to ~$35
The risks:
- Lingering share loss risk in Airline Solutions in 2018 – in our view a lagging indicator which we think turns to share gains starting in 2019
- Lack of momentum in Hotels beyond Wyndham – there is a great deal of opportunity in Hotel Solutions…but maybe a lack of urgency by the company after rolling out its biggest customer
- Macro GDS risks
What about NDC? Today NDC holds both risk and reward, with the reward part including the chance of potentially finding some great, new, small technology company innovating in the sector that can be synergistic with Sabre’s platform.
