Sabre Corp. (SABR) is on the Hedgeye Technology Best Ideas List as a LONG.
Le Bull Case
- New data center means Sabre can shift away from DXC, and finally actually track down towards the annual minimums. We expect this to be a multi-year tailwind to FCF.
- Improvement in cash outflow for AS-related professional services implementation expense.
- Improving OCF, lesser TRA payments, more efficient capex towards a post-DXC structure, end of buyback, together mean SABR can finally de-lever. That is the best possible news.
- New management is more nimble, will handle new problems swifter than its predecessor.
- New technology for transaction processing puts them in a league with Amadeus–or better–which will matter to the P+L from 2H18, and new technology architecture for Airline Solutions will give them faster time to market with new product and greater monetization opportunities from 2019.
Le Bear Case
- Still losing in major head to head Airline Solutions opportunities vs. Amadeus.
- Current TN direction features strong data points for 1Q18 (as we previewed HERE) but also features gradually weaker y/y travel climate.
- Any big business in transition will take time to yield results.
Net: We continue to see as much as ~70% upside on a 12-18 month time horizon as FCF continues to improve, net debt goes down, and investors get on board with a company in the process of improvement. The near term downside risks would be in the ~15% range for lack of forward improvement in cash flow, and the outside risks of a major setback in execution or competitive landscape would risk as much as ~30% on a 12+ month horizon. The setup thus looks like upside:downside measure at 2:1 which we like and continue to recommend.
