The COVID-19 pandemic has been brutal on numerous business segments that involve people leaving their homes. One of the worst impacted segments has been the travel sector, including airlines, hotels, and travel web sites.
And while there’s no timeline on when things will normalize again, I think it’s time to look at some of the battered travel-related stocks. An aggressive play with great upside coming out of the pandemic is Sabre Corp (NASDAQ:SABR).
Although SABR stock is down about 65% this year and well below its 52-week high of $23.25, it’s still intriguing.
It may be too early to add Sabre stock to a portfolio, but I feel that the distressed price allows for limited downside risk, coupled with strong upside.
The reality is, the economy is reopening despite the high number of COVID-19 cases. We’re seeing rising airline capacity and hotel occupancy, and I feel that there could be a major turnaround in 2021 if a vaccine becomes available.
When you use a travel agent or company to book a plane, hotel, car, train, cruise, or tour, there’s a good chance you’re using technology provided by Sabre Corp.
A glance at the SABR stock chart shows the massive selling this year after hovering at a sideways channel at $20.00–$22.00, prior to the sell-off.
Chart courtesy of StockCharts.com
For long-term investors, the opportunity for strong gains is realistic. At its current price, Sabre stock could easily double or triple.
As business picks up, SABR stock could move toward $10.00–$12.00 and then toward $20.00. The speed of the rally will depend on the economic renewal.
Things Will Improve for SABR Stock
A look at the last five years shows Sabre Corp’s relatively decent fundamentals. Then the pandemic surfaced.
The company grew its revenues in four years straight, to a record $4.0 billion in 2019. The growth wasn’t spectacular, but it was steady.
|Fiscal Year||Revenues (Billions)||Growth|
(Source: “Sabre Corp.” MarketWatch, last accessed November 12, 2020.)
As we move forward, much will depend on the extent of the pandemic and the global economic recovery.
Analysts estimate that Sabre’s revenues will plummet by 65.1% to $1.4 billion this year, prior to bouncing 88.4% to $2.6 billion in 2021. (Source: “Sabre Corporation (SABR),” Yahoo! Finance, last accessed November 12, 2020.)
Along the way, Sabre generated positive earnings per share (EPS) on both a generally accepted accounting principles (GAAP) and adjusted basis.
|Fiscal Year||GAAP Diluted EPS||Growth|
(Source: MarketWatch, op. cit.)
On an adjusted basis, Sabre Corp made $1.01 per diluted share in 2019. The pandemic is expected to see the company report an adjusted loss of $2.64 per diluted share this year—the company’s first loss in five years. The loss is expected to narrow to $0.75 per diluted share in 2021. (Source: Yahoo! Finance, op. cit.)
The key for Sabre is to contain its cost side during the low-revenue period. The company has $4.8 billion in debt and cash of $1.3 billion. (Source: Yahoo! Finance, op. cit.)
A positive sign is that Sabre generated positive free cash flow (FCF) in the last five years, to a high in 2019.
|Fiscal Year||FCF (Millions)||Growth|
(Source: MarketWatch, op. cit.)
Another positive sign is that, over the past six months, insiders added 2.6 million common shares of Sabre stock and sold none. (Source: Yahoo! Finance, op. cit.)
The low entry point for SABR stock presents an attractive risk/reward scenario for patient investors.
One strategy would be to add a small position and put it aside. I’m pretty sure Sabre stock has the potential for strong returns.