We recently maintained a Neutral recommendation on
), a Brazilian aircraft and aviation-related structural parts
BOEING CO (BA): Free Stock Analysis Report
ERICKSON AIR-CR (EAC): Free Stock Analysis
EMBRAER AIR-ADR (ERJ): Free Stock Analysis
NORTHROP GRUMMN (NOC): Free Stock Analysis
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Apparently, things are not going Embraer's way for the last three
trailing quarters as the company failed to meet the Zacks Consensus
Estimates, with four quarters average being a negative 59.3%.
Second quarter 2012 was also a bad quarter to report for the
company. Earnings per ADR, though came in at 30 cents; lagged the
Zacks Consensus Estimate by a whopping 49.2%. Revenues fell 26.4%
to $1.7 billion.
The dismal results reflected a heavier tax burden, rising wages in
Brazil, overt dependence on a few customers and a drop in demand
for business jets. Moreover, rising expenses on the back of a
competitive aircraft manufacturing industry and increasing cost of
sales and services had an adverse impact on the company's margins
in the quarter.
Despite the near-term setbacks, Embraer's firm order backlog and
strengthening worldwide customer order servicing and on-time
deliveries of corporate, defense jets and executive jet-support
structures bode well for the stock. Moreover, Embraer has
solidified its position in the security solutions business across
the Brazilian as well as other foreign governments generating
healthy revenue across segments.
Further, the company continues to invest in the global support
network incorporating new service centers and dealers. All such
strategic deals and partnerships are expected to lend more
stability to the company's investment stream and ensure future
All the above factors thus balance our view and we, therefore,
prefer remaining on the sidelines for Embraer. The company
currently holds a Zacks #3 Rank, implying a short-term rating. Its
nearest competitors are
Erickson Air-Crane Incorporated
Northrop Grumman Corporation
), each holding a Zacks # 2 (Buy) Rank.