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Morningstar | Narrow-Moat Sabre's Competitive Positioning Continues to Regain Traction; Shares Fairly Valued

Our view offered over the past several months--that Sabre's technology positions the company to remain relevant and positioned to gain share--was buoyed by second-quarter results. The Travel Network segment (73% of sales) regained booking share (37.1% from 36% last year; rival Amadeus' share was down a fraction), and organic volume growth accelerated in the IT business (27% of sales). Narrow-moat Sabre maintained its 2018 sales and EBITDA growth guidance of 4%-7% and 0%-3%, respectively, and we don't plan a material change to our $27 fair value estimate, which incorporates 5.6% average annual sales growth over the next five years with operating margins of 17.3% in 2022 from 16% in 2017.

Network air bookings increased 7% in the quarter, above the industry's growth of 4.7% and Amadeus' 2.9% rise, driven by Sabre's Flight Centre and other wins over the past year, supporting our stance on its solid competitive product offering. While it's not surprising that Sabre's Asia-Pacific network bookings grew 23.5% (versus 29% for Amadeus) due to the Flight Centre win last year, it is encouraging that North American volume rose 5% (versus 6.5% for Amadeus), as the company held its own despite peers' competitive efforts to enter the region. Segment sales per booking grew to $5.11 from $4.86, further evidence that Sabre's technology offering is gaining traction with the new executives hired in the past two years.

Airline Solutions' organic sales and passengers boarded grew 8% and 9.8%, respectively, representing an acceleration from the mid-single-digit lift witnessed in recent quarters, offering more credence to Sabre's competitive positioning. Hospitality grew 10.4% as Sabre completed the implementation of Wyndham on its cloud-based reservation management system. This came in ahead of Amadeus, which is in the process of onboarding its first enterprise customer, InterContinental, to its system (scheduled to be complete by year-end 2018 or early 2019).

It is encouraging that Sabre's lodging, ground, and sea bookings grew 11.8%, aided by the Flight Centre implementation. Attach rates to air transactions should be enhanced by a recent collaboration with Booking Holdings that will display that firm's 28 million-plus accommodation listings on Sabre's network.

For investors interested in a substantiated background on Sabre's competitive positioning and technology roadmap, we highlight our two most recently published deep-dive reports: "Sabre Shares Set to Gain Altitude; Investors Should Buckle Up" (Dec. 12, 2017) and "Continue Traveling With Sabre Shares; Technology Gaining Altitude" (April 16, 2018).