Sabre Earnings: Market Searches for Negatives but Demand, Profitability, and Liquidity Improving

Sabre SABR shares retreated a low-single-digit percentage on concerns regarding slower future air bookings growth, which we think is a misguided conclusion. Rather, our takeaway from Sabre’s update is that the demand recovery is progressing as expected and it is gaining share. Further, management announced plans for $200 million in incremental expense savings by 2024, provided detailed 2025 EBITDA guidance of at least $900 million, which was above FactSet consensus of $799 million (but in line with our $933 million forecast), and laid out plans to reduce debt—harmonizing with our existing prognosis. We don’t plan to materially change our $10.50 per share fair value estimate and view shares as meaningfully undervalued.

First-quarter air bookings as a percent of 2019′s level reached 61% in the quarter, up from 58% in the fourth quarter, and management reiterated its 2023 sales target of $2.8 billion-$3 billion (versus our $2.9 billion estimate), which we believe implies air bookings around 64% of 2019′s level. Sabre’s path to at least $900 million in 2025 EBITDA now implies air bookings at 75% of 2019′s level versus at least 80% prior, and the company no longer includes financial scenarios for air bookings at 100% and 120% of prepandemic marks in that year. On the surface this seems like a stepped-back view of industry demand recovery. But, while Sabre has seen no change in demand trends and thinks there is likely upside to its new recovery rate, it is choosing to give guidance on factors within their control, such as cost savings and new wins (the company’s air booking share increased to 34% in the quarter from 31.5% last year).

Sabre also reiterated its positive free cash flow guidance for 2023 (excluding restructuring) and provided a 2025 target of at least $500 million, above our $445 million estimate. Also, the company plans to end 2025 with net debt/adjusted EBITDA at 3.75 times (versus 60 times in 2022 and our estimate for 13 times in 2023), near our 3.9 forecast.