Amadeus IT stock downgraded to Market Perform amid mixed near-term growth

On Tuesday, Amadeus (BME:AMA) IT Group SA (AAD:GR) (OTC: AMADY) experienced a shift in stock rating as Bernstein SocGen Group adjusted its stance on the company's shares. The firm downgraded the stock from Outperform to Market Perform, while also slightly reducing the price target from EUR71.50 to EUR71.00.

The downgrade comes despite the company's strong position in the Air distribution and Air IT sectors. Amadeus IT Group, recognized as a major player, generates over 60% of its EBITDA from its Air IT and Hospitality divisions.

The remaining portion of EBITDA comes from the GDS business, which is experiencing slower growth. The company has been successful in gaining market share in distribution and securing new contracts for its Air IT services, including nine significant airlines since 2019 that have transitioned or plan to transition to Amadeus' Passenger Service System (PSS).

Bernstein SocGen Group highlighted the company's robust balance sheet and its strategy of returning cash to shareholders. The firm anticipates a roughly 14% annual Total (EPA:TTEF) Shareholder Return (TSR) in a steady state at a constant multiple, driven by a combination of net income growth, dividend yield, and share buybacks. The products offered by Amadeus are well-invested and positioned for future growth, with the launch of Nevio potentially leading to more contract wins in Air IT.

Despite these strengths, the analyst pointed out that further contract announcements have been slower than expected following a flagship deal with British Airways. However, the possibility of Amadeus gaining additional market share from competitors or through new outsourced contracts remains likely. The revised price target is based on a 19.0x multiple of the firm's 2026 EPS estimate of EUR3.8, with lowered estimates factoring in a decrease in near-term revenue per passenger boarded.

InvestingPro Insights

To complement the analysis provided by Bernstein SocGen Group, recent data from InvestingPro offers additional context on Amadeus IT Group's financial position and market performance. The company's market capitalization stands at $30.62 billion, reflecting its significant presence in the travel technology sector.

Amadeus IT Group's P/E ratio of 22.9 suggests that investors are willing to pay a premium for its earnings, which aligns with the company's strong market position and growth prospects in the Air IT and Hospitality divisions. This is further supported by an InvestingPro Tip indicating that the stock is trading at a low P/E ratio relative to near-term earnings growth, with a PEG ratio of 0.88 for the last twelve months as of Q3 2024.

The company's revenue growth of 13.33% over the last twelve months demonstrates its ability to expand its business, even in a challenging market environment. This growth, coupled with a robust gross profit margin of 43.49%, underscores Amadeus IT Group's operational efficiency and pricing power within its industry segments.

An InvestingPro Tip also notes that the stock generally trades with low price volatility, which may be attractive to investors seeking stability. Additionally, the company's profitability over the last twelve months and analysts' predictions of continued profitability this year reinforce the positive outlook mentioned in the article.

For investors interested in a deeper analysis, InvestingPro offers 8 additional tips for Amadeus IT Group, providing a more comprehensive view of the company's financial health and market position.

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