We are maintaining our Neutral recommendation on
We are optimistic on Embraer's efforts to improve productivity
and efficiency alongside a firm order backlog. The company's margin
consistency and strict control over SG&A costs are
Embraer's worldwide customer order servicing and on-time
deliveries of corporate, defense jets and executive jet-support
structures strengthen its global footprints. The company
strengthened its position in the security solutions business across
the Brazilian as well as other foreign governments generating
healthy revenue across segments. We anticipate further expansion
for the company across both commercial and defense aviation market
in the coming quarters.
The company continues to invest in the global support network
incorporating new service centers and dealers. All such strategic
deals and partnerships are anticipated to lend more stability to
the company's investment stream and ensure future growth.
However, Embraer operates in a commercial aircraft manufacturing
industry, which is highly competitive. Thus, the company requires
continual technological and performance enhancement to keep up with
the growing demand in the commercial aircraft manufacturing market.
Such measures for retaining market share and remain competitive
involve recurring costs.
Rising expenses have been a nagging concern for Embraer with
cost of sales and services staying on the upside over the last few
quarters. Administrative, selling and research expenses as well as
fuel charges continue to exert pressure on operating margins,
Nevertheless, currency fluctuations, rising wages and heavier
tax burden aggravate margin pressure and continue to severely
impact the company's earnings growth.
Brazil-based Embraer's product portfolio supports strong
customer orders worldwide. Its diversified global footprint offers
fierce competition to industry operators of the likes of
Erickson Air-Crane Incorporated
Northrop Grumman Corporation
The company currently retains a Zacks #3 Rank, which translates
into a short-term Hold rating.
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