The first quarter yielded soft gross margin profits for global distribution services (GDS), but one analyst remains hopeful for an accelerated gross profit growth rate.
The Ratings
Bank of America Merrill Lynch analyst John King upgraded Sabre Corp SABR to Buy and raised his price target from $18 to $29.
King downgraded Travelport Worldwide Ltd TVPT to Neutral and maintained a $19 price target.
The Theses
Bank of America expects catalysts and earnings momentum to drive the discounted GDS stocks, and considering near-term conditions, Sabre is seen superior to Travelport.
“We see early signs of progress in Sabre’s technology refresh, while for Travelport strong commission inflation partially offsets upside risks from activism and momentum in payments (eNett),” King wrote in a Tuesday note.
Travelport’s eNett is outperforming amid the launch of a major customer’s private channel, but the value is negated by “underwhelming” GDS gross-margin trends driving commission inflation.
“So the strong YTD performance following the [activist] investment from Elliott suggests the story relies somewhat on activism for material further upside, in our view,” King wrote.
Meanwhile, Sabre demonstrated improved competitive positioning in the most recent quarter and converted King through its strategic shift to cloud and micro-services.
Price Action
Travelport traded down marginally to close at $17.07, while Sabre traded up 1.6 percent at $23.99.
Related Links:
Deutsche Bank: What To Expect From Online Travel Agency Earnings
Sabre Expands Relationship With Amazon's AWS, Reports Q1 Beat
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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