EVEX - Embraer: Moving Into Harvesting Mode

2024-04-01 06:34:04 ET

Summary

• Management has successfully turned around Embraer in the last few years, repairing the company's balance sheet and leading the company to profitable growth in all of its segments.
• The company's leadership has made clear that it is now looking to "harvest" these efforts by monetizing the company's product portfolio.
• Profitability looks to be at an inflection point leading to a potential rerating of the stock driven by both earnings growth and multiple expansion.
• Valuing ERJ at 8x 2026E EBITDA results in a target stock price of $44 implying more than 60% upside from its current stock price. Hence, we assign a STRONG BUY rating on the stock.

Investment Thesis

Following the fallout of the pandemic and a failed combination of its Commercial Aviation business with Boeing, Embraer (ERJ) has regained its footing driving both top-line growth and profitability in recent years.

With a solid balance sheet, a very strong backlog in all of its divisions, and a competitive product portfolio, management is determined to move into harvesting mode in the coming years....

For further details see: