Embraer gained a formidable boost from Morgan Stanley on Thursday. In an analysis released to investors, the bank placed the Brazilian manufacturer as its “top pick” among aerospace companies.
The positive rating made Embraer shares jump more than 10% in just one day. Year-to-date, the company’s market value grew 33.4%.
Morgan Stantey justified the recommendation by considering that Embraer is capable of breaking the Airbus-Boeing duopoly in the segment. The two giant aircraft producers dominate sales in commercial aviation and have an important presence in defense, space and other business niches.
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“The company has a renewed portfolio of new products such as the E190-E2 and E195-E2 in the commercial passenger jet category, the Phenom 100/300 and Praetor 500/600 in executive jets, the KC-390 Millennium in defense and expanded Maintenance, Repair and Overhaul (MRO) capabilities across services,” said Morgan.
“Embraer has evolved from a niche aircraft manufacturer to a globally prominent and diversified Aerospace & Defense company ready to capture market share,” the analysis added.
After an unsuccessful joint venture with Boeing in commercial aviation, Embraer had to rethink its business and seek greater efficiency to cover losses from the frustrated agreement.
In parallel, the Brazilian company and its former partner are in litigation in the United States due to the end of the US$4.2 billion agreement. The bank believes that Embraer will be compensated for Boeing’s breach of contract.
Backlog still small
The appreciation of the company’s shares comes at a time when it has just received a large order for 90 E175 jets from American Airlines.
The 76-seat regional aircraft is alone on the market after the end of production of the CRJ jets and the cancellation of Mitsubishi’s SpaceJet program.
With the new order, the backlog should approach 400 commercial aircraft, a level that was last achieved in 2018.
Even so, sales of E2 family jets remain below those of the previous generation. By December 2023, Embraer had 306 firm orders for the E190-E2 and E195-E2, or 16% of what it obtained for the E-Jets (1,909 aircraft).
The manufacturer’s production capacity is also much more contained than Boeing and Airbus. The company plans to return to delivering 100 or more commercial planes in the next two years while Airbus has seven times as many deliveries.
In recent statements, Embraer’s CEO, Francisco Gomes Neto, has said that the time is coming for the company to reap the fruits of years of work. He believes that airlines will soon have a closer eye on their products. Apparently, Morgan Stanley agrees with this.
