Sabre Books Gains on Planes & Hotels

03/10/2016 8:00 am EST

Focus: STOCKS

Timothy Lutts

Publisher, Cabot Heritage Corporation

The mega-trend of increasing online air travel and hotel reservations isn’t a new story, but it remains a powerful one, notes Timothy Lutts, editor of Cabot Stock of the Month.

Which will be the leader going forward? And what about the airlines themselves, many of which are also enjoying boom times?

Clearly, competition in this space is going to be fierce in the years ahead, so instead of trying to pick a winner in a crowded field, we’re recommending a stock that’s sure to benefit no matter who wins.

Sabre (SABR) is the bullet provider to the air and hotel booking wars, so to speak. Operating the leading global distribution system in the world, it is our favorite way to play the boom in travel bookings.

Sabre is basically a big reservation network that collects data on available flights, hotels, prices and times/dates, and then organizes. And distributes them in a concise manner.

Many major airlines and online sites are customers. Airlines and hotels pay a fee to Sabre to use the system, while Sabre gives travel agents incentives to use its network.

Most of its bookings are in the US.  But it’s aiming for big things in Asia, too, where the industry’s fastest growth is occurring; last year, Sabre bought Abacus, the leading GDS player in Asia, serving more than 100,000 travel agents and 11 of the top Asian airlines.

Beyond its GDS, Sabre has an increasingly profitable IT business (about 30% of revenue) that helps airlines and hospitality players improve their marketing, distribution and operations.

Last year, revenues rose 13% in total, while earnings improved 17%. But the exciting part is what comes next — management guided to 15% revenue growth for 2016, with earnings expected to grow 30%.

The trick is where to buy the stock. If you want to play it carefully, you can buy a half-sized position and then add the other half should SABR eventually lift above $30.5 to new highs.

For our part, though, we’ll keep it simple, adding a full position. An initial loss limit in the $23 to $23.5 area should keep risk in check and allow the stock plenty of wiggle room if the stock pulls back.

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