Embraer (ERJ) is a Brazilian diversified airplane manufacturer.
The company has a significant presence across the globe within the private jet space and is working on expanding into other markets, such as passenger and military aircraft. I am bullish on the stock. (See Analysts’ Top Stocks on TipRanks)
Latest Orders After Earnings Miss
Embraer has managed to book a large number of orders during its previous quarter. In Q3, the company managed to deliver nine commercial jets and 21 executive jets (14 light, seven large).
Although Embraer did miss its Q3 revenue and EPS targets by $61.9 million and $0.02, respectively, the company has raised its full-year guidance.
Embraer anticipates free cash flow to come in at $100 million to $150 million excluding divestitures. In addition, the firm is expecting to reach its delivery target of 45-50 aircraft and 90-95 executive jets, which could, in turn, translate to full-year consolidated revenues of between $4 billion to $4.5 billion.
Finally, on Monday, Embraer stock surged by 3.1% as it was announced that Nigeria’s Overland Airways had acquired three E175 jets worth $299 million apiece. It does however remain unclear in which period revenue will be recognized from this deal.
Eco-Models
Embraer’s eco-friendly concept helicopter and jets are a massive talking point within the aviation world. Although the models are only anticipated to reach the market by 2030 to 2035, the hype could spur investor optimism.
Nations across the globe are targeting net-zero emissions by 2050. Embraer’s pivoting its business model early on to facilitate future demand, and this alone is an encouraging sight.
Key Metrics
The stock does have its risks, with an interest coverage ratio of only 1.04 and a leverage ratio of 155.67%. However, this is being combated with significant growth across line items. Embraer has produced revenue growth of 36.8% year-over-year, and it’s anticipated that EBITDA will grow by 42.51% in the year ahead.
Embraer stock’s price multiples are in sound territory. The price-to-sales ratio is probably the best metric to look at, considering the company is still in a growth phase. Embraer’s price to sales ratio of 0.6 is 81.4% lower than its five-year average, and well below the generally accepted overvalued threshold of 2.00.
Wall Street
Wall Street analysts assign a Moderate Buy rating on the stock, based on two Buys and one Hold. The average Embraer price target is $20.75, which indicates upside potential of 39.1%.
Final Word
Embraer is gaining significant traction from various buyers, and there’s much optimism surrounding the company’s eco-model concepts. The stock is undervalued, and looks like a good investment opportunity at the moment.
Disclosure: At the time of publication, Steve Gray Booyens did not have a position in any of the securities mentioned in this article.
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