Sabre's share value experienced a significant drop on Tuesday.
The announcement of a downgrade shifted the momentum for Sabre (SABR -1.83%), leading to a notable drop in its share price on the second business day. This travel software industry stalwart experienced a decline of over 3%, while the S&P 500 (^GSPC +0.4%) managed to end the day with gains of 0.4%.
Sell recommendation switch
Before the market commenced, Bernstein SocGen forecaster Alex Irving decided to change Sabre's recommendation. Irving now considers Sabre an underperformer (translate: sell), when previously it was rated as a market perform (translate: buy). Irving's proposed price target for the shares is $3 each, implying a potential decrease of 18% based on the latest closing price.
According to news sources, Irving has expressed concern that Sabre's business is heavily reliant on its global distribution system (GDS) sector, which generates approximately 70% of its total revenue. Irving believes that this segment is not generating growth presently.
He also raises the notion that Sabre has excessive concentration on the North American market. Irving asserts that the rapid pace of change in the region's travel industry could give Sabre difficulties in keeping pace.
Overwhelmed by debt
Irving, in his analysis, highlighted another issue faced by Sabre – its high debt burden. The company's net debt exceeds $4 billion, which could make it vulnerable during a downturn in the travel industry.
Although there are no indications of this happening at present and the travel industry is thriving, there is no guarantee that it will remain so. Investors should show caution with this stock as a result.
In light of Irving's analysis, potential investors might want to reconsider their approach to investing in Sabre, given its new sell recommendation and the forecaster's concerns about its overreliance on the GDS sector and high debt burden. As a result, carefully managing finance and considering risk levels becomes crucial when considering investments in Sabre.
