On Tuesday, Gimme Credit raised the credit rating of Brazilian aircraft manufacturer Embraer (NYSE: ERJ), shifting its outlook from Deteriorating to Improving. The upgrade reflects a positive shift in the company's financial health despite 4Q23 aircraft deliveries falling slightly short of management's expectations.
The company's deleveraging process is anticipated to be showcased in the 4Q23 financial results. Embraer is projected to have reduced its net leverage from 2.4 times in the third quarter of 2023 to 1.5 times by the end of the fourth quarter. This trend is expected to persist into 2024, bolstered by a backlog that reached its highest point since early 2018 in the previous quarter.
Embraer is also likely to focus its free cash flow on decreasing debt, aiming to regain the investment grade rating it lost in mid-2020. The company's strategy for managing its finances has been conservative, with no debt repayments due until mid-2027, which strengthens its liquidity position.
"We have a positive fundamental opinion on Embraer, the Brazilian aircraft manufacturer. The company is well placed to benefit from the sustained expansion of the commercial aviation industry and to capitalize on the growing demand in the defense industry," said Gimme Credit.
Embraer's efforts throughout 2023 to fortify its balance sheet and improve liquidity have been recognized as indicators of its conservative financial approach.
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