Stock Strategist: Sabre's Network Advantage Intact Despite a Challenging Near-Term Environment

[Morningstar Logo] [Company Site] [Company News] [Membership] [Portfolio] [Stocks] [Options] [Funds] [ETFs] [Markets] [Tools] [Personal Finance] [Discuss] Stock Strategist Sabre's Network Advantage Intact Despite a Challenging Near-Term Environment The business model is driven by transaction volume and not pricing, leading to less cyclical volatility. [tab_bar] by Dan Wasiolek | 11/4/2016 1:00:00 PM Advertisement Order Now - Morningstar's Fund Newsletter Get the authoritative source for mutual fund analysis, from the company that invented the field. Morningstar FundInvestor's mission is to hone your consideration set, delivering critical cost analysis, prospects for forward momentum, manager ability, and more. See for yourself why nobody in the investment world knows more about funds than Morningstar. [Click to try!] [Sabre]'s [SABR] IT Solutions (30% of sales) performance remains healthy and in line with our forecast, but near-term industry headwinds had an impact on the company’s Travel Network (70% of sales). As a result, Sabre lowered 2016 sales growth guidance to 13.6%-14.7% from 14.5%-15.8% (versus our existing forecast of 14.7%), and reduced 2016 EBITDA growth targets to 12%-13.6% from 14.7%-16.8% (versus our 14.8% estimate). We plan to reduce our $29 fair value estimate by $1 to account for lower travel sales in 2016, leaving shares undervalued. Although narrow-moat Sabre’s booking share reached 37.3% in the third quarter versus 37.1% in the prior year, the company experienced top-line and bottom-line near-term headwinds. The travel segment saw sales growth of 2.3% versus the prior year and 24.4% growth on a two-year stacked basis, which decelerated a bit from last quarter’s 27.9% growth rate. The slowdown was due to U.S. corporate weakness (U.S. is around 40% of company sales) and the insolvency of a large customer in Europe. Encouragingly, these issues appear transitory, as management has seen a pick-up in multinational travel during October and expects fourth-quarter revenue reacceleration to 4%-5% growth (27% on a two-year stacked), resulting in 2016 sales growth just over 12%, which is below our existing 2016 forecast of 13.5% growth. As a result, we plan to reduce our sales forecast toward 12% for the year, while maintaining our 4% annual long-term growth forecast. Due to U.S. corporate weakness, North American booking growth was an anemic 1.6%, but Sabre expects improvement here in the fourth quarter. Meanwhile, the Europe, Middle East, and Africa region saw bookings growth up 3% (adjusted for an insolvent customer) in line with the market, and Sabre expects share gains in the region to resume in the fourth quarter as new customers come online. Finally, Asia-Pacific bookings growth was up a healthy 6.8%, aided by Abacus, which was acquired in the middle of last year. We expect Sabre's global distribution system share to increase over the next several years, driven by expansion into new markets, the recent acquisition of Asian Pacific GDS company Abacus, and a growing presence in technology solutions for travel suppliers and agents. We see the company's share of GDS bookings (among the top three operators) reaching the mid-30s at the end of this decade from low-30s in 2015. We see Sabre's technology share of passenger boardings reaching the high-20s in 2020 from a high-teens percentage in 2014. To read more, click [here]. Sponsored Links [Buy a Link Now] New: ETF Managed Portfolios Center On [MorningstarAdvisor.com]: Tap into the industry's best source of information on ETF strategies for financial advisors. See key performance data, screen for specific strategy attributes, and learn more about this fast-growing area of the investment marketplace. [Click to get started]. Free Issue | Morningstar's Stock Newsletter >> Morningstar StockInvestor is celebrating more than 10 successful years of high-quality stock investing. Its two real-money portfolios have outperformed the S&P 500 since 2001. [Get new ideas for the core of your stock portfolio]. Search Most Recent Articles [The Reason for the DOL Rule: IRAs] [Bond Fund Duration: An Art, Not a Science] [A Rundown of Impending Mutual Fund Capital Gains Distributions] Latest Analyst Reports [L Brands Inc] [Alnylam Pharmaceuticals Inc] [XPO Logistics Inc] [Reynolds American Inc] [US Concrete Inc] ABOUT OUR EMAIL TO UNSUBSCRIBE this email address to the Stock Strategist newsletter, please click "reply" and then click "send." This will unsubscribe only this email address to this specific newsletter. All subscription changes will take effect within one business day. Replies are not read by individuals, so please do not use this for queries about Morningstar.com. If you have questions about Morningstar.com or your membership, send a note to [joe@morningstar.com]. ABOUT OUR PRIVACY POLICY Please [click here] to learn about Morningstar's privacy policy. (c) Copyright 2016. Morningstar, Inc. 22 West Washington Chicago, Illinois, 60602 All rights reserved.