Embraer is the IBD Stock of The Day for Tuesday. Shares of the airplane maker on Tuesday jumped off their 50-day moving average and surged toward a buy point.
The Brazilian-based aerospace manufacturer produces a fleet of commercial, luxury and defense jets. Embraer's earnings and revenue both accelerated over the past two quarters, following two straight earnings declines. The company's November-ended Q3 report showed earnings and revenue both jumped 38%, but sales growth fell short of Wall Street forecasts of a 47% gain.
Third-quarter commercial aviation revenue, reported in November, spiked 68%. Executive aviation, Embraer's luxury jet fleet, saw revenue leap 25%. Margins improved in both segments. Defense revenues increased 40%, but gross margin fell to 16.1% from 26% last year. Services and support revenue rose 24%, marking two consecutive quarters of growth.
Delivery Constraints
Meanwhile, Embraer on Jan. 30 announced it delivered 75 aircraft in Q4, slightly down from the 80 jets delivered in Q4 last year, due to supply chain delays. Still, 2023 deliveries were up 13% to a total of 181 aircraft. The company's backlog rose 7% to $18.7 billion.
Embraer's E2 line of commercial jets more than doubled to 39 deliveries while the executive aviation segment posted its largest delivery volume in seven years. The company in December won a $544 million contract with South Korea for military transport jets, according to reports from FlightGlobal. Embraer is expected to reveal the total order number in its next quarterly report on or around March 18.
HSBC on Feb. 6 downgraded Embraer to hold from buy but raised its price target to $19 from $18 based on supply chain pressures affecting commercial and executive jet deliveries. The supply constraints could continue through 2024, but will likely start easing in the second half of the year and into 2025, the note said.
The Future Of Flight
Embraer also founded Eve Air Mobility as a spinout of its Embraer-X incubator in 2017. Eve Air Mobility is an independent company that produces electric vertical takeoff and landing (eVTOL) aircraft for urban environments.
Eve Air on Feb. 20 announced it selected Spain-based Aciturri as its wings supplier and Crouzet of France to supply its cockpit controls. Garmin, Liebherr Aerospace, Intergalactic, BAE Systems and Honeywell are a few of Eve's other suppliers.
Also on Feb. 20, Eve and Japan-based SkyScape, a vertiport development company, announced an agreement to use Eve's Urban ATM (air traffic management) system as part of the Japanese government's Advance Air Mobility (AAM) concept. The announcement marked Eve's 13th Urban ATM customer and sixth Urban ATM vertiport customer, the company said. Vertiports operate similar to helipads but are specialized for eVTOL aircraft.
As part of the agreement, Eve and SkyScape will collaborate to test and promote Urban Air Mobility and Urban ATM software in Japan, including research, trials and showcases.
Embraer Stock
Embraer trades in American depositary receipts (ADRs) under the ticker ERJ.
The company ranks sixth in the Aerospace/Defense group according to the IBD Stock Checkup. Howmet Aerospace leads the group.
ERJ stock surged more than 3% Tuesday as shares climbed away from their 50-day moving average. The stock had traded around the moving average since a December/January pullback
Shares traded tightly over the last four weeks, MarketSmith charts show. Tuesday's move pushed ERJ stock above an early entry at an 18.85 high within the tight pattern.
The larger picture shows Embraer consolidating with an official 20.13 buy point. The cup base is shallow, and looks similar to a flat base. However it is 16% from top to bottom. Anything with a depth greater than 15.5% is disqualified as a flat base.
ERJ stock has a 97 Composite Rating out of a best-possible 99. The Composite Rating combines various technical indicators into one easy-to-read score. Shares have a 73 EPS Rating. The stock's relative strength line is climbing back toward its mid-December highs and the stock has an 84 RS Rating.
Shares are up 4.5% so far this year.
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