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Why Is Sabre (SABR) Up 54.9% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Sabre (SABR). Shares have added about 54.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Sabre due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Sabre’s Q1 Earnings & Revenues Surpass Estimates

Sabre Corporation reported first-quarter 2020 adjusted loss per share of 29 cents, which declined significantly from last year’s first-quarter earnings of 34 cents per share. However, the bottom line beat the Zacks Consensus Estimate by 14.71%.

Revenues came in at $659 million, down 37.2% from the year-ago quarter. However, the top line beat the Zacks Consensus Estimate of $653 million.

The top line was primarily affected by significant reductions in air, hotel and other travel bookings due to the coronavirus pandemic’s adverse impact on the global travel industry.

Importantly, the company terminated its acquisition of Fairlogix by paying $21 million of termination charges to the latter.

Revenue Details

Travel Network revenues decreased 45% year over year to $428 million. The Global Distribution System environment witnessed a decline of 49%, which was an overhang. New air bookings decreased 32%. The decline was driven by travel restrictions due to the coronavirus pandemic.

Airline Solutions revenues came in at $180 million, down 16% from the year-ago quarter, primarily due to a 17% decline in reservation revenues and 13% in operations revenues.

The impact of the insolvency of Jet Airways and the demigration of Philippine Airlines and Bangkok Airlines remained overhangs.

Hospitality Solutions revenues dropped 19% year over year to $59 million.

Margin Details

Adjusted gross profit came in at $167.1 million, down 55.2% from the year-ago quarter. Further, adjusted gross margin contracted significantly to 25.4% from 35.6% reported a year ago.

Adjusted operating loss was $151 million against operating income of $110 million in the year-ago quarter. This can primarily be attributed to significantly lower revenues and $31 million of bad debt expenses. Cost-saving measures also led to $25 million in charges.

Adjusted operating income for the Travel Network fell 17.2% due to the impact of the shift in capitalization mix.

Adjusted operating income for Airline Solutions decreased 39.2%.

Hospitality Solutions incurred an adjusted operating loss.

Balance Sheet and Cash Flow

Sabre ended the quarter with cash and cash equivalents of $684.5 million compared with $436.2 million in the previous quarter.

Cash provided by operating activities decreased to $40.4 million from $156.9 million sequentially.

Free cash flow was $12 million for the first quarter compared with $133.9 in the prior quarter.

Guidance

Sabre withdrew its annual guidance for 2020 recently, considering the adverse impacts of coronavirus. Notably, management mentioned that IATA projects a “55% reduction in passenger revenue in 2020, putting 25 million jobs around the world at risk”.

Approximately 15% of Sabre’s revenues are independent of travel volumes. This partially mitigates its exposure to the pandemic’s impact on travel.

Moreover, the company aims to save $325 million in costs in 2020.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -13.61% due to these changes.

VGM Scores

At this time, Sabre has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Sabre has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.



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