On Tuesday, UBS adjusted its stance on Embraer (NYSE:ERJ) stock, shifting from a Buy to a Neutral rating, while increasing the price target to $28.50 from the previous $21.00. The revision follows a period of market rallies that, according to the investment firm, have fully valued the positive aspects of the company's potential financial performance.
Embraer's recent stock price is seen to reflect an EBITDA of approximately $700 million, which aligns with the upper end of the company's guidance. This leaves a negligible upside potential of about 2%, based on historical valuations and Embraer's current net debt standing at $780 million.
UBS anticipates that Embraer will achieve the lower spectrum of its delivery targets for 2024 due to ongoing supply chain and engine challenges that could hamper the growth of higher deliveries.
The firm also forecasts significant revenue growth in both the Defense & Security (D&S) and Services & Support (S&S) sectors. The production increase of the C-390 military transport aircraft is expected to be a primary contributor to the D&S sector's performance. Meanwhile, capacity expansions, operations at OGMA, and robust segment momentum are projected to bolster the S&S sector.
In terms of profitability, Embraer saw its EBITDA margin expand by 60 basis points year-over-year in 2023, and a similar improvement is expected for 2024. This would place the company's margins at the top of their guidance range.
UBS estimates Embraer's EBITDA to hit around $660 million, which is in line with the consensus on Wall Street of $670 million and within the company's provided guidance range of approximately $600 million to $700 million.
InvestingPro Insights
In light of UBS's recent re-rating of Embraer, it's worth noting the real-time data from InvestingPro which offers additional context. Embraer's market capitalization stands at $4.95 billion, with a P/E ratio of 31.27, indicating the company's earnings relative to its share price. Adjusting for the last twelve months as of Q4 2023, the P/E ratio slightly decreases to 27.77. A particularly striking metric is the PEG ratio for the same period, which is at 0.17, suggesting that the company's earnings growth may be undervalued relative to its earnings potential.
From an investment standpoint, Embraer is trading near its 52-week high, with a price 99.52% of that peak. The company has also experienced strong returns over various periods, with a notable 74.68% return over the last year. These metrics underscore the InvestingPro Tip that Embraer has been a high-return company over the last year. Moreover, analysts predict the company will be profitable this year, aligning with UBS's revenue growth expectations in the Defense & Security and Services & Support sectors.
For those interested in deeper analysis, InvestingPro provides additional tips on Embraer, including insights on net income growth, liquidity, and debt levels. With a total of 15 InvestingPro Tips available, investors can gain a more comprehensive understanding of the company's financial health and prospects. To access these insights, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.