Investors were disappointed by Embraer’s lower-than-expected order numbers at the world’s largest air show last week, however some experts were encouraged by an offer from China and interest in its electric aircraft subsidiary.
Embraer, the world’s third-largest aircraft manufacturer after Airbus and Boeing, received 13 new commercial jet orders at the Paris Airshow, falling short of market expectations and prior years’ levels.
This caused the company’s stock to fall about 18% in a week, reversing the 11% rise witnessed in the days leading up to the event, when market participants appeared to be enthused about the chance of new partnerships.
“Embraer’s commercial activity was not strong enough to meet investors’ expectations,” wrote XP Investimentos analysts, who maintain a Buy rating on the company based on its growth possibilities and favorable valuation.
The 13 new orders are in comparison to 74 at Le Bourget in 2019 and 28 at Farnborough last year. They also fell short of some optimistic market estimates, which included at least 30 orders predicted by JPMorgan analysts.
The paucity of purchases from the burgeoning Indian airline sector, which handled an all-time record 500-plane deal to Airbus and fresh orders to Boeing, particularly surprised investors.
“Given the significant announcements from Airbus, it’s possible that Embraer shareholders feel frustrated,” said BTG Pactual analysts, who also have a “buy” recommendation on the planemaker’s stock.
SLOW BUT LUCRATIVE
Nonetheless, a number of experts remain bullish on the Brazilian industry, citing a post-pandemic travel rebound that is driving money into the sector.
According to BTG, the sales to current clients Binter and American Airlines accounted for 19% of Embraer’s expected 65-70 deliveries this year, making them “significant deals.”
These orders add to a healthy backlog, with the E2 aircraft largely booked out for this year and 2024 after recently gaining new clients such as Royal Jordanian, Salam Air, and Scoot.
Despite the air show’s general slow pace, financial research firm Zacks described the purchases as “lucrative” and “highlighting the reliability and efficiency this jetliner offers.”
Other positive takeaways from the air show included Eve, an electric aircraft company that struck commitments for the sale of up to 150 flying cars, and Embraer’s agreement to return to China by turning passenger jets into freighters.
Embraer shares are still up 20% this year, and some experts believe there is still room for growth.
“We believe that most of the pre-event excitement has already been adjusted in share prices,” said XP. “There isn’t much room for more pressure.”
