IBD Stock Analysis
- Embraer is buyable after rebounding off the 50-day line from a pullback.
- Shares have also retook their 21-day moving average.
- If it tops a recent high of 16.97, that would be an opportunity to add shares.
Industry Group Ranking
* Not real-time data. All data shown was captured at
1:46PM EDT on
On Monday, Embraer disclosed that Canadian regional airline Porter Airlines has ordered 80 E195-E2 jets collectively worth about $5.82 billion. They are expected to launch in the second half of 2022 and fly to the U.S., Mexico and the Caribbean.
That’s a shot in the arm for Embraer after big setbacks. Last year its commercial jet sales tumbled 51% to 44 planes amid the pandemic. And Boeing (BA) walked away from a $4 billion takeover of Embraer’s commercial aviation unit.
ERJ Stock Technical Analysis
U.S.-listed shares surged 7.8% to close at 15.16 on the stock market today. ERJ stock offers an entry from its rebound off the 50-day moving average after a big surge and pullback to the key support level, according to MarketSmith chart analysis. The pullback to the 50-day line also saw lower volume on down days, a bullish sign.
Shares also retook the 21-day line Monday, and the relative strength line is improving after a multiyear downtrend. Embraer holds a Relative Strength Rating of 96 out of a possible 99, according to the IBD Stock Checkup tool. That means it has outperformed 96% of all stocks in the past year. Its Composite Rating, which combines key fundamental and technical metrics in a single, easy-to-use score, is 80 out of 99.
If ERJ stock undercuts the recent low of 13.70, that would be a sell signal. If it tops the recent high of 16.97, that would be an opportunity to add shares.
Embraer shows an Accumulation/Distribution Rating of B+, on an A+ to E scale. That means institutions have been moving money into Embraer stock. In fact, the Brazilian plane maker shows two quarters of increasing fund ownership. And 99 funds owned ERJ stock as of June, up 8% from March.
Embraer stock holds the No. 7 rank in the aerospace-defense industry group. The group itself has surged in rank to No. 47 out of 197 industry groups tracked by IBD, up from No. 74 a week ago.
Meanwhile, aerospace supplier Spirit AeroSystems (SPR) is also in a pullback and could be poised for a rebound as top customer Boeing tallies up more new orders.
Embraer Earnings Outlook
The Sao Paulo-based maker of commercial, defense and executive jets earns a poor EPS Rating of 40 out of 99. In pandemic-hit 2020, Embraer widened its net loss per share to $3.98 from $1.75 the prior year, according to FactSet.
But earnings headwinds are easing as planes return to the skies. Wall Street expects Embraer to sharply narrow losses to 86 cents per share in all of 2021. It’s seen rebounding to EPS of 11 cents in 2022, though that would still be below EPS of $1.34 in 2017.
Sales are seen rebounding 17% in 2021 and a further 21% in 2022. They fell 31% to $3.77 billion in 2020 as the Covid-19 pandemic gutted global commercial air travel.
Embraer CEO Francisco Gomes Neto expects 2021 to remain challenging. But “we are confident that the market will pick up activities in the second half [of 2021] and we are prepared to grow strongly in 2022,” he said on an earnings call in March.
Shares made a high June 15 after Bank of America analyst Ronald Epstein upgraded ERJ stock to buy from neutral, while raising his price target to 20 from 8.
Embraer estimates a $200 billion market for its Eve eVTOL (electric vertical takeoff and landing) unit, with 3 billion passengers and 50,000 aircraft by 2035. Epstein sees “significant upside from Eve’s potential public listing or alternative investment opportunities.”
Find Aparna Narayanan on Twitter at @IBD_Aparna.
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