Google Cloud Migration And Emirates Partnership Will Improve Operations

Key Takeaways

• Migration to cloud infrastructure and advanced technology focus are expected to improve operational efficiency and drive sustainable revenue growth.
  
• Expansion of distribution channels and personalized hospitality offerings are anticipated to significantly boost revenue growth and financial health by 2025.
  
• Sabre's strategic investments and focus on cash flow face risks from market competition, unexpected expenses, and global travel uncertainties impacting margins and revenue projections.

Catalysts

Operates as a software and technology company for travel industry in the United States, Europe, Asia-Pacific, and internationally.

• Sabre's successful completion of its technology transformation and migration to a cloud-based infrastructure, in partnership with Google, is expected to reduce costs by over $150 million versus previous years, resulting in lower technology costs and improved operational efficiency. This is likely to impact net margins positively.
  
• The strategic focus on developing a modern technology stack, open marketplace, and intelligent retailing solutions is anticipated to drive sustainable growth by enabling better customer integration, higher scalability, and enhanced security. Revenue growth is expected to benefit from the ability to deliver advanced solutions.
  
• The expansion of distribution channels through a multi-source platform and integrations with major airlines like Emirates and Qantas is expected to drive significant volume growth in air distribution bookings, particularly from signed but not yet fully implemented agreements. This should boost revenue growth starting in 2025.
  
• The rollout of SabreMosaic and the expansion of SynXis Retail Studio in the Hospitality Solutions segment are enhancing personalized offerings and optimizing revenue for hospitality customers. This is expected to drive double-digit growth in CRS transactions and positively impact overall revenue.
  
• Sabre's efforts to generate free cash flow and de-lever its balance sheet, coupled with expected high single-digit revenue growth and adjusted EBITDA above $700 million in 2025, sets a positive outlook for future earnings and financial health.

Sabre Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Sabre's revenue will grow by 5.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from -9.2% today to 1.9% in 3 years time.
• Analysts expect earnings to reach $66.2 million (and earnings per share of $0.16) by about May 2028, up from $-278.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $108.5 million in earnings, and the most bearish expecting $24 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 38.4x on those 2028 earnings, up from -3.4x today. This future PE is greater than the current PE for the US Hospitality industry at 22.6x.
• Analysts expect the number of shares outstanding to grow by 1.07% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.41%, as per the Simply Wall St company report.

Sabre Future Earnings Per Share Growth

Risks

• Sabre's focus on generating free cash flow and de-levering their balance sheet indicates financial priorities that could be challenged by unforeseen liquidity issues or increased interest expenses, which could impact net margins.
  
• The investment in technology and strategic growth, while promising for long-term value, might strain resources in the short term especially if revenue expectations are not met, potentially affecting earnings.
  
• The mention of achieving significant revenue growth through new contracts and wins carries execution risks, particularly regarding the timely implementation and integration of new clients, which could influence revenue stability.
  
• Competition within the travel industry and pressures from costs associated with the adoption of cloud technology and digital payments could place downward pressure on net margins.
  
• Currency fluctuations, geopolitical dynamics, and potential disruptions in global travel could alter expected growth trajectories and impact revenue projections.

Valuation

• The analysts have a consensus price target of $4.625 for Sabre based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $7.25, and the most bearish reporting a price target of just $3.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.6 billion, earnings will come to $66.2 million, and it would be trading on a PE ratio of 38.4x, assuming you use a discount rate of 11.4%.
  
• Given the current share price of $2.44, the analyst price target of $4.62 is 47.2% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.