Optimism around the company’s shares is rising after American Airlines ordered up to 133 planes in early March; This month alone the shares have already risen 28.79%.
A Embraer reached a market value of R$24.7 billion this Friday the 22nd, a record since its entry into the Novo Mercado da Bolsa, in 2006. Optimism around the share is increasing since up to 133 planes were ordered from American Airlines, in early March, and gained ground this week, after the company released its financial statements and guidance (projection) for 2024, which were considered strong by the market. The flow of positive news has led to a series of increases in the stock’s target price by major banks.
In the month of March alone, Embraer accumulated an increase of 28.79%, while Ibovespa fell by 1.64% in the same period. Today, the ordinary shares and the American Depositary Receipt (ADR) of the Brazilian company listed in New York advanced by around 8%, in the wake of the positive opinions of JPMorgan and Goldman Sachs, which raised their target prices to 51 R respectively $ and 35 USD, indicating upside potentials of 65% and 41.5% from the close on Thursday the 21st.
Before that, at the beginning of the month, the BTG Pactual included Embraer in its recommended stock portfolio, reiterating it as the sector’s first choice (preference).
On March 4, Embraer received an order for up to 133 jets from American Airlines, with 90 firm orders for the E175 model. If all purchase rights are exercised, the deal will exceed $7 billion, according to the list price.
Last week Morgan Stanley began the sequence of price target increases, raising the ADR from $19.50 to $40, a potential increase of 61.7% from the previous day’s close. The bank says Embraer is now “emerging from multiple investment cycles and entering a harvest period,” being seen as a “third commercial aerospace player weathering competition and entering the duopoly of Boeing and Airbus.”
For JPMorgan, Embraer’s valuation remains attractive, with the company valued at 7.2 times Ebitda (EV/Ebitda) forecast for 2024, despite being below the five-year historical level of 8.3 times. The bank raised its 2025 EBITDA estimates by 7%, reflecting an equivalent increase in revenue due to the positive outlook for Defense, as well as the American Airlines order, which led to an increase in expected margins for 2025 and 2026.
Goldman Sachs points out that Embraer has a dominant position in the regional jet market, where demand driven by aircraft replacement is on the rise. Furthermore, it has a strong position in the executive jet market, with supply/demand still limited.
Results and projections
On Monday 18th, amidst the markets’ optimism, Embraer published its financial statements for 2023 and projections for 2024. Despite the 10% rise in the previous session, following Morgan Stanley’s rise, the stock did not reach profit and closed with an increase of close to 2%.
For analysts, the results were robust and exceeded expectations. The highlight was free cash flow (FCF), which ended the year at $320 million, compared to a projection of around $150 million. In its earnings release, the company attributed the performance primarily to inventory reductions and strong prepayments.
Embraer’s return on invested capital (ROIC) reached 8.8% in 2023, 200 basis points above 2022 and similar to its cost of capital. “Looking ahead, the goal is to get Roic above double digits,” the manufacturer’s chief financial officer, Antonio Carlos Garcia, said during an earnings call.
The guidelines, published together with the budget, were also welcomed by experts. Projections point to positive growth in 2024, according to Citi’s Stephen Trent, Filipe Nielsen and Jay Singh. Santander analysts Lucas Barbosa, Lucas Esteves and Gabriel Tinem comment that the estimates indicate a healthy expansion in volumes, but with targeted revenues.
Embraer CEO Francisco Gomes Neto said he was “extremely confident” it could meet forecasts. Despite the challenges that still exist in the production chain, the manager hopes that the company will maintain the positive trend recorded in 2023, a year that he described as memorable. “It was the beginning of a new cycle focused on sustainable growth. We remain optimistic about our ability to grow,” he said.
Source: Terra
Ashley is a professional author and journalist, working at 247 News Update. She writes on various topics from economy news to general interest pieces, providing readers with relevant and informative content. She brings a unique perspective and in-depth analysis to her work.
