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Why Shares of Sabre Are Taking Off Today

By Lou Whiteman – Aug 11, 2020 at 2:34PM

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As airline stocks show signs of life, companies that rely on the airlines for revenue are coming along for the ride.

What happened

Airline shares have soared higher in recent days, and companies that rely on aviation for revenue are going along for the ride. Shares of Sabre (SABR 1.88%) traded up 11% on Tuesday morning on growing investor optimism that travel is slowly rebounding.

So what

Airlines have seen travel demand evaporate due to the pandemic, and that has had a trickle-down impact on companies like Sabre. Sabre, a former American Airlines Group subsidiary that runs airline ticketing and reservation systems, last week reported an adjusted second-quarter loss of $1.30 per share on revenue of $83 million, far below the $0.84 per share loss on $162 million in sales analysts had expected.

View out the window from an airport lounge.

Image source: Getty Images.

Absent a rebound in travel, there is little Sabre can do to fly higher. Which is why it is no surprise that as optimism around the airlines improves, so too does buying interest in Sabre and other travel stocks.

Airlines got a jump on Monday after weekend data showed an uptick in passengers passing through airports, and continued higher on Tuesday on reported progress toward a COVID-19 vaccine.

While the travel rebound is encouraging, we are unlikely to see volumes return to pre-pandemic levels until the vaccine is widespread and COVID-19 is no longer a significant worry.

Now what

The latest headlines are encouraging, but investors need to be reminded that a full recovery is still years off.

Sabre is doing what it can to deal with the crisis. The company said last week it expects to generate $275 million in annualized cost savings in 2020. Still, CEO Sean Menke said "the overall travel environment remains severely depressed."

LUV Chart

Sabre and airline data by YCharts

Shares of Sabre are down 61% year to date, underperforming all of the major U.S. airline stocks. There's an argument to be made that the stock is oversold, and investors with a long time horizon and the patience to ride out the storm will be rewarded.

But even if that is true, be warned that it will likely take years for the recovery to take hold and for that investment to pay off.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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