A Stock for Dad: Sabre Group
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Stocks for Dad
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This is part of The Motley Fool's annual "Stocks for Dad" special (Father's Day is June 15). If Dad likes comfort, relaxation, and growing profit margins, be sure to check Fool.com Wednesday for another great stock idea. The Sabre Group (NYSE: TSG) Dad, you have always loved to travel. You always loved to take the family along too. Maybe I didn't appreciate it when I was growing up. OK, I confess, I was an ungrateful little brat. I should have been thanking you for giving me the opportunity to see this amazing world we live in, rather than complain about the teen parties and band rehearsals that I missed along the way. I know better now. Thank you. So, I figured I'd single out a stock you might appreciate taking under your wing this year. You may know The Sabre Group (NYSE: TSG). The company's been booking online travel before booking online travel was cool. Since you're just a few flights away from hitting the million-mile mark with your American Advantage frequent flyer account, I guess I should point out that the company was spun off by American Airlines' parent AMR (NYSE: AMR). The lion's share of its revenue, nearly 75% this past quarter, comes from Sabre's role as the leading marketing and distribution services specialist for the travel industry. Travel agencies and corporate travel departments rely on Sabre to help secure flight availability and book the final itineraries. As a barometer for the travel sector, I don't have to tell you how slow business has been lately. The company's air travel bookings have fallen by 16% over the past two years as a brutal one-two blow delivered by flight-weary consumers and businesses alike have hurt the top line. So, when I tell you that revenue growth during the March quarter was essentially flat, you have to wonder what the other 25% of the company is doing so well to make up for the shortcomings in its core of global distribution system services. Plenty. For starters, nearly 10% of its revenue comes from airline solutions. Because the company has been at the heart of booking logistics for so long, it's been easy to sell software solutions and consulting services to the airline industry. Even in these tight times, this was a growing business. The remaining chunk of Sabre's business comes from its Travelocity and GetThere online travel services. You know about Travelocity. Along with Expedia (Nasdaq: EXPE), the two sites lead the popularity race with consumers when it comes to Web-based travel portals. Thanks to its own marketing efforts, as well as exclusive contracts with online heavies like Yahoo! (Nasdaq: YHOO) and AOL Time Warner (NYSE: AOL), Travelocity has grown even as the sector around it has stalled. GetThere is Sabre's corporate travel website. Sabre is realistic. Its 2003 profit outlook is based on a 12% decline in total global bookings. However, even under that bleak backdrop, it sees Travelocity growing its revenue by more than 30% this year. Along with a cash-rich balance sheet, Sabre is looking to earn between $0.95 and $1.05 a share this year. Wall Street thinks that the company is good for $1.37 a share in profits come 2004. When you have Expedia and Hotels.com (Nasdaq: ROOM) fetching 45 and 35 times next year's bottom line targets, respectively, isn't Sabre a bargain here with a multiple in the high teens? Sure, it's not the pure online play like its high-flying dot-com rivals, but it's the more conservative approach. Besides, no one thinks that Sabre's flagship business is doomed. The airline industry may be in a holding pattern but, given time, it will be cleared for takeoff. It always has before. Until then, riding out the sector's lull in Sabre and collecting the quarterly dividend checks from the window seat may prove to be the safest way to fly this very promising sector. Dad, one more thing. We recently launched our Travel Center. It offers a bunch of tips on trek planning and booking vacations online. So, when you go ahead and start making reservations for your next trip, can you do me one favor? Take me with you! Rick Aristotle Munarriz really was a spoiled runt when he should have been enjoying his globetrotting youth. He doesn't own shares of any of the companies listed in this story. Rick's stock holdings can be viewed online, as can the Fool's disclosure policy. A Stock for Dad represents the opinion of one Fool and should in no way be taken as the opinion of either The Motley Fool, Inc. or the company in question, or as representative of anyone or anything other than that specific Fool's thoughts.
Trading at $23.95 as of June 9, 2003
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