Undervalued Sabre’s Technology Transformation on Track

Sabre's shares rose a midteens percentage, as its long-term technology transformation plan first outlined in February 2020 (which stands to reduce costs, improve reliability, and speed innovation) remains on track, despite severe demand headwinds created by the pandemic the past two years. Having largely accounted for this with operating margins surpassing 20% by 2026 versus 9% reported in 2019, we don't expect a meaningful change to our $15 fair value estimate, leaving shares undervalued. Sabre continues to see its 2019-24 technology investments leading to $350 million to $450 million in hosting cost and capital expenditure savings by mid-decade, generating a 10-year ROI of 30%-35%. We maintain our long-held view that this transformation stands to make the company more competitive in an industry set to experience dynamic change in retailing and distribution of travel content, supporting its network, switching cost, and efficient scale advantages (sources of its narrow moat). Turning to the current landscape, Sabre's corporate travel exposure (50% of prepandemic demand) continues to lag the leisure trip recovery but is showing signs of improvement. Sabre's fourth-quarter air bookings reached 45% of 2019 levels, directly in line with our forecast and up from 38% last quarter. For 2021, air bookings reached 37% of 2019 levels, up from 21% in 2020. Like peers, omicron impacted Sabre's performance in December and January, when air bookings dropped to 39% and 29% of 2019 levels, respectively, versus the 51% and 44% seen in November and October. February air bookings are on track to return to November's high-water mark. We expect Sabre's air volumes of to approach 60% of 2019 levels in 2022 and above 70% in 2023, with a full air booking recovery around 2028. Meanwhile, Sabre posted an EBITDA loss of $261 million versus our $316 million loss estimate. We expect EBITDA of around $900 million by 2025, as demand recovers under a more cost-efficient structure.

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