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An analyst downgrade was the news that pushed down the share price of Sabre (NASDAQ: SABR) on the second business day of the week. The travel industry software mainstay lost altitude to the tune of over 3%, on a day when the S&P 500 (SNPINDEX: ^GSPC) index ended up posting an increase of 0.4%.
A switch to sell
Well before market open, Bernstein SocGen prognosticator Alex Irving made that Sabre recommendation change. For him, the travel software specialist is now an underperform (sell, in other words), where formerly it rated a market perform (buy). Irving's current price target on the shares is $3 apiece, suggesting potential downside of 18% on the latest closing price.
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According to reports, Irving is concerned that Sabre's business is too heavily weighed to its global distribution system (GDS) business, i.e., its traditional computer network system that handles transactions between travel providers (airlines, hotels, travel agencies, etc.). In his latest note on the company, Irving pointed out that this segment comprises around 70% of total company revenue, and that it is not a source of growth at the moment.
That might become more of a challenge going forward, as another Sabre weakness is that it is too concentrated on the North American market, the analyst wrote. The pace of change in the region's travel industry is very quick; Sabre might have difficulty keeping up with this.
Weighed down by debt
Another issue for Sabre that Irving rightfully pointed out is the company's high amount of leverage -- in his note, the pundit pointed out that it had over $4 billion in net debt. This could leave it quite vulnerable to a downturn in the travel industry.
Although there are few signs of this on the horizon and travel is currently quite a frothy business, no trend lasts forever. Investors should be rather cautious with this stock now.
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