The storm experienced by Embraer in 2020 was violent. Few companies have suffered as much as the plane maker, which has watched industry demand plummet as its customers parked their fleets around the world as countries adopted social distancing measures to contain Covid. Two months after this crisis began, the company suffered another blow, with Boeing giving up on buying its commercial aviation division. The result was a 55% drop in Embraer shares and a loss of R$1.5 billion for the year.
But as fast as it sank, Embraer appears to be on the mend. Last year, still in the midst of the pandemic, the company recorded a quarterly profit (between April and June) – which had not happened since the same period in 2018. It still had the highest increase in B3. While the Ibovespa dropped 12% in 2021, Embraer rose 180%.
Despite the fact that, at the beginning of 2022, the company’s performance on the Stock Exchange was negative, with an accumulated drop of 23.5%, the mood among the company’s analysts is one of optimism. XP sees room for shares traded in Brazil to appreciate 44%. As for the papers sold in the United States, Itaú sees a potential for an increase of 47% by the end of the year; BTG, 40% and Citi, 22%.
“What makes me positive is that I don’t see the current share price reflecting, at the same time, the resumption of commercial aviation and the innovation with the ‘flying car’. Perhaps one of these factors is in the price, but not both,” says analyst Lucas Laghi of XP.
COMMERCIAL AVIATION. The recovery of commercial aviation in the world was led by the regional market, for airplanes with up to 150 seats, in which Embraer is the leader. With a capacity of 88 seats, the E175 model is practically unrivaled today. In 2020, the worst year of the pandemic crisis, 73% of the commercial aircraft delivered by the company were of this model. In the first nine months of 2021, that share dropped to 47%.
“Embraer has great exposure to the regional market and it maintains its leadership with the E175 in the US, which is one of the largest domestic aviation markets”, says analyst Thais Cascello, from Itaú BBA.
The global resumption of commercial aviation has benefited not only this segment of Embraer, which now accounts for a third of revenues, but also the company’s services division, as the need for airlines to maintain their planes has increased. Embraer’s service and support area has the highest profit margin and its share of revenue generation increased from 22.5% in 2019 to 28.5% in the first nine months of 2021.
In the defense segment, the billionaire C-390 Millenium project (a military freighter, the largest aircraft ever developed by the company) was completed and stopped generating expenses. Now, the expectation is that it will bring revenue. The market, however, predicts that this division will have an increasingly smaller share in the company – from January to September 2021, it was 16.5%.
The executive aviation area has seen consolidated growth, mainly because Embraer got the product portfolio right. “The margin has improved more and more”, says Thais, from Itaú. In the last quarter of 2021, the segment’s revenue rose 17%.
COSTS In addition to favorable wind in all its divisions, Embraer has also become more efficient, reducing costs. This year, it announced the sale of two factories in Portugal, which, according to the company’s president, Francisco Gomes Neto, were inefficient. Before, it had already renegotiated contracts and fired 2,500 employees (15.6% of the Brazilian workforce).
To crown the scene, the eVTOL (an electric vertical take-off and landing vehicle, as the “flying car” is officially called) has become the big bet for the future of aviation, and Embraer, one of the promises in the area . Last June, when the news was confirmed that Eve (the Embraer company that develops the project) would merge with the American company Zanite to go public on the New York Stock Exchange, Embraer shares jumped 15.6% in a only day.
“As the more traditional businesses are doing better or are not causing so much headache for the investor, the market felt more comfortable to price eVTOL. Perhaps, if the traditional business had not been doing so well, the group would not be so inclined to buy a new business that still needs to prove itself”, adds the Itaú analyst.
Embraer’s president believes that, among all the factors that boosted the company, the projects to make it more efficient and the “flying car” are the most important. Gomes Neto says that, for the company’s shares to rise as expected by the market, consistency in the work will be necessary. “We need to deliver what we promised, as we did by the third quarter of 2021.” And the promise is not small. By 2026, the executive wants to almost double Embraer’s revenue compared to 2020.
The information is from the newspaper. The State of São Paulo.
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