Sabre's Prospects Clouded by Macro Headwinds and High Leverage, Analyst Downgrades Stock

B of A Securities analyst Victor Cheng downgraded Sabre Corp SABR from Buy to Underperform and lowered the price target from $11 to $7.
The analyst became less bullish on the 2023 recovery, leading to more downside potential on the stock, given its high leverage and rising interest rates.
While Cheng expects the wider airline IT market to grow double digits in FY23 as volumes continue to recover, he estimates SABR’s airline IT solutions to increase by 3% in FY23 amid multiple headwinds, including the migration of Russian carriers, notably Aeroflot and Rossiya, and sale of AirCentre.
The analyst found it challenging for Sabre to remain competitive given its liquidity concern, deeper cost cuts, and ongoing IT transformation.
The price target reflects lower growth near-term and a higher WACC of 10.4% (from 9.5%). The Q4 recovery is relatively muted overall.
In the U.S., recovery has somewhat stagnated, with Winter Storm Elliott leading to canceled flights in the last ten days of December.
EMEA bookings were sluggish due to lower intra-Europe bookings.
APAC recovery gained momentum, with many regions improving but partially offset by operational cutbacks in Australia.
The BofA economists now expect a very likely recession in the U.S. and Europe. Nonetheless, the reopening of Asia and a still-nascent corporate travel recovery are likely to offset the impact of a downturn partially.
In 2023, Cheng expects Etihad Airways, Hawaiian Airlines, and ITA Airways to migrate away from Sabre.
However, the planned merger of Spirit Airlines, Inc SAVE (Amadeus customer) with JetBlue Airways Corp JBLU (Sabre customer) can more than offset these losses if Spirit migrates to Sabre.
Price Action: SABR shares traded lower by 7.93% at $6.39 on the last check Wednesday.

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