Jet maker Embraer emerges as Brazil’s best stock on orders flow

Embraer SA’s push into a market long dominated by Boeing Co. and Airbus SE is bearing fruit in equity markets, as a flow of new orders from North America and Europe to Asia sends the stock soaring.

The São José dos Campos-based aircraft manufacturer has jumped about 42% this year, touching the highest since 1997 and leading gains on Brazil’s benchmark equity index. Its US-traded shares have climbed almost 32% — more than double the advance seen by Airbus stock — while Boeing has slumped 34% in the span. 

“There was a supply duopoly between Boeing and Airbus, and Embraer has been investing for a long time to compete and break that,” said Priscila Araujo, a portfolio manager at Brazilian asset manager O3 Capital. Higher demand for private jets and smaller-sized commercial aircraft after the pandemic has helped the company secure new orders abroad, supporting its performance, she added.

While the Brazilian planemaker so far hasn’t won huge orders, markets are optimistic — the stock’s 12-month target price, which is at a record, implies further gains of about 17%, according to data compiled by Bloomberg. Airbus and Boeing are sold out of their most popular narrow-body models until the end of the decade, creating an opportunity for Embraer to offer its largest planes. The company’s tanker-transport military aircraft, the KC-390 Millennium, has lured interest from nations across Europe and Asia, becoming more profitable international export. 

Deals with India and Saudi Arabia “will change the size of the company” if confirmed, said Pedro Martins from Ace Capital. 

Though Embraer reported lighter than expected deliveries in the fourth quarter, its guidance for 2024 — consolidated revenue between $6 billion and $6.4 billion and strong deliveries expected in its commercial and executive aviation segments — sent shares jumping. JPMorgan raised its price target for the ADRs citing a “superior” growth outlook. 

“Embraer is showing a resilience that was not expected, and profiting from the success of the KC-390 and also with the strong demand in the private jet market,” said Daniela Da Costa-Bulthuis, Rotterdam-based portfolio manager at Robeco Institutional Asset Management.

Boeing Fallout

The Brazilian planemaker is also benefiting from the comparison to Boeing, which is facing a myriad of woes — which include everything from harsh scrutiny on its quality controls to regulators capping production levels of its 737 Max plane, ongoing investigations by US prosecutors and changing management.

Fallout from the failed merger between the two planemakers could also provide a boon for Embraer. After the deal fell apart in 2020 in the midst of the pandemic, the Brazilian company filed a lawsuit for some of the financial losses incurred during the process. The lawsuit is expected to conclude in the first half of the year, potentially earning Embraer a cash payment of as much as $400 million, according to JPMorgan analyst Marcelo Motta.

“There’s a lot of people waiting for this resolution, and if the number comes out positive, then everyone is happy,” Martins said.