Seeking Alpha
Profile| Send Message| ()  
Embraer (ERJ) is the first and only airplane manufacturer in the world to have entered the commercial jet market since 1960. This is a stock that I first came across a few weeks back as one of the companies to watch out for in the emerging markets space. More recently, reader Boris brought this stock to my attention.

A Brazilian manufacturer, Embraer-Empresa Brasileira de Aeronautica S.A., engages in the design, development, and manufacture of aircrafts for commercial, business jet, and defense purposes, operating in commercial aviation, private jet market, government and defense aviation. The last few quarters has seen fluctuating earnings which can be attributed to the seasonality and cycles that surround the commercial airline business. But with operating and profit margins at twice the rate of Boeing (BA), and the widely accessible market of South and Latin America, Embraer's future looks bright.

While quarterly earnings have been growing recently at almost 68%, the company carries more debt than I would normally be comfortable with, but then again, other participants in this industry carry large debts too. Despite the recent stock advance on news of the sale of 100 jets to Chinese owned HNA Group worth $2.7 billion, the stock sports a humble PEG of 0.69, a Price to Sales ratio of 1.6 and and sits over 10% below its 52-week high.

With customers like JetBlue, HNA and a number of private jet operators in Latin America, coupled with high operating margins without the baggage of "the unions", Embraer looks quite attractive at these levels. That being said, the stock might come in a little and has some overhead resistance between 40 and 42, but patient investors get rewarded a 2.2% dividend for theirperseverancee. I recommend opening a half position at these levels, and buying at dips.

There is some risk in this stock considering that ERJ trades as an ADR and was Brazil'’s largest exporter from 1999 to 2001 and the second largest in 2002, 2003 and 2004. It is heavily dependant on the Brazilian economy, terrorism, Latin American politics and oil prices, although airline travel, specifically business travel, has picked up this year, essentially bucking the oil trend.

ERJ 1-yr chart:


Source: Keep Brazilian Jet Maker Embraer on the Radar