What is behind EMBRAER’s soaring performance? Shares up 12% in the week and 64% in 40 days

RIO DE JANEIRO, BRAZIL – The shares of aircraft manufacturer EMBRAER (EMBR3) closed the week as the second largest rise in the Ibovespa index, with 12.3% gains in the period. In Friday’s trading session, shares rose 4.8% and led the positive side of the index.

However, this positive performance is not new. Since January 29th (the last trading day in the month) to date, the accumulated appreciation reaches 64%, against a 1% overall drop in the Ibovespa over the same period. Such performance hs led the shares, currently priced at R$14.40, to their highest level in a year.

Behind this surge, market analysts mention 6 main factors:

1. Data from the order backlog for the fourth quarter, released on February 12th and considered marginally positive by analysts. The São José dos Campos-based company reported the delivery of 71 jets in the period, only 10 fewer than in the same period of 2019, before the pandemic.

2. Statements by Lufthansa CEO Carsten Spohr, disclosed in a Bloomberg article on February 15th, about initial talks with EMBRAER for the sale of aircraft. The information was later confirmed by the Brazilian company. The article also reported that the German airline, one of the largest in the world, is considering replacing large aircraft with smaller ones as a strategy to adjust to changes in demand and for more efficient fleet management.

3. The progress of vaccination in developed countries and the consequent economic and air transport recovery, which benefits EMBRAER because most of its customers are foreign airline companies.

4. The perception that the company may benefit from a new market structure with more room for regional flights and orders for medium-sized aircraft, given the sharp drop in demand for intercontinental and long-haul flights with the novel coronavirus pandemic.

5. The delivery of new-generation E195-E2 aircraft to Dutch airline KLM in late February; and more recently, in news released this week, the company’s first transformation of a Legacy 450 into a Praetor 500 jet.

6. Effects resulting from the company’s cost reduction program (administrative, commercial and research), one of the priorities of CEO Francisco Gomes Neto, who will complete 2 years leading the company in April.

“EMBRAER’s shares benefited from the reopening of the world economy, as well as from the advance of global vaccination. It is also important to highlight the catalyzing effect for the company resulting from the likely agreement with Lufthansa,” says Vitor de Melo, analyst at EXAME Invest Pro.

“This news of the conversion of a Legacy into a Praetor is positive because the Legacy line is no longer part of the company’s backlog, and the Praetor is in line with the new precepts of global aviation. With the modernization, the company is creating a new growth path that was not on the agenda,” says Ilan Arbetman, analyst at Ativa Investimentos.

“If there are more such initiatives, of companies enhancing their executive aircraft, the company can, based on this, create another line to emerge from the pandemic crisis,” adds Arbetman.

The Ativa analyst pointed out that the two February events may also have contributed to the positive trend in the company’s shares.

“We had the fourth quarter backlog, which was marginally positive, with emphasis on the executive and defense areas; and we also had Lufthansa’s CEO saying that he was in talks with Boeing and Airbus to switch from large to smaller planes, which is EMBRAER’s niche; and that he would also be in initial talks with EMBRAER,” states Arbetman.

EMBRAER’s shares climbed 14% in the first trading session after the news about Lufhtansa came out, on February 17th.

Strategist Gustavo Cruz, from RB Investimentos, attributed Friday’s high to the news of the conversion of a Legacy 450 into a Praetor 500 for Canadian AirSprint Aviation.

With respect to the rise in value posted in recent weeks, he adds that there is perception that EMBRAER is benefiting from the recovery scenario of major economies abroad, with other countries progressing faster than Brazil in terms of vaccination.

Investors are waiting for the release of the company’s fourth quarter results, scheduled for next Friday, March 19th, before the opening of the trading session.

Despite this year’s upswing, EMBR3 shares still accumulate a fall of about 27% from the start of 2020 to date, a reflection of the impact of the pandemic on global air transport and Boeing’s pullout from the planned joint venture with EMBRAER’s commercial aircraft division.

Source: Exame