UBS upgrades Amadeus to 'buy,' citing growth potential and market stability

Investing.com -- Amadeus (BME:AMA ) has been upgraded to a "buy" rating by analysts at UBS Global Research in a note dated Friday. 

This upgrade reflects improved confidence in the company’s business outlook and growth potential. 

UBS raised its 12-month price target for Amadeus shares to €80 from €67, citing several factors driving the upgrade.

A key reason for the improved outlook is the normalization of disintermediation rates in the distribution sector. 

Disintermediation, driven by direct connections and New Distribution Capability channels, had raised concerns about the longevity of traditional Global Distribution Systems. 

However, UBS analysts noted that the Madrid-based company has successfully adapted, demonstrating relevance even in the evolving landscape. 

The company’s ability to integrate NDC content while maintaining competitive pricing has been highlighted as a significant strength.

The brokerage emphasizes Amadeus's performance in narrowing the gap between distribution bookings and passengers boarded, which aligns with long-term trends. 

Distribution volumes, projected to grow by 6.4% in Q4, are expected to stabilize close to passenger boarding growth rates in 2025. This stability reassures investors about the enduring role of GDS in the travel ecosystem.

UBS also identified attractive growth opportunities in Amadeus’s Air IT and Hospitality segments. 

The Altea-Nevio upgrade cycle in the Air IT division and partnerships with major hospitality players like Accor (EPA:ACCP ) and Marriott are expected to underpin double-digit revenue growth in these areas over the coming years. 

These segments complement the company’s core GDS business, broadening its revenue base.

Valuation metrics further support the upgrade. Amadeus is trading at 12.4x forward EV/EBITDA, slightly below its long-term average (excluding pandemic years). 

UBS adjusted its valuation approach, applying a higher EV/NOPAT multiple and lower free cash flow yield to reflect increased confidence in Amadeus’s distribution business and overall strategy.

The analysts also noted the potential for shareholder returns through buybacks, estimating up to €1 billion in excess free cash flow could be available for this purpose in 2025.

The brokerage acknowledged lingering challenges, including the fragmented nature of indirect distribution channels. 

Nonetheless, Amadeus’s ability to grow market share and achieve higher pricing levels has been viewed positively. 

The company’s positioning and investment capacity compared to peers like Sabre (NASDAQ:SABR ) and Travelport further increase its competitive edge.

Source: Investing.com