Monday, Credit Suisse upgraded Embraer-Empresa Brasileira De Aeronautica SA (ERJ) shares to Neutral from Underperform and increased its price target to $19 from $16. The brokerage reduced its 2009 earnings per ADR estimate by 11% to US$1.51, while increasing its 2010 estimate by 9% to US$1.85.
Analyst Otavio Campos noted that Embraer reported a very strong operating performance for second quarter, with substantial improvement in performance. Skepticism on its ability to deliver better operating margins was one of the main investor concerns. Therefore, results should be well received by the market.
Despite the analyst's concerns at the time he resumed coverage in May, related to deliveries, margin guidance and working capital, he has seen improvements on these 3 fronts. There seems to be support from the BNDES on financing, margin was strong in second quarter, although currency remains a risk, and working capital is behaving well.
The analyst noted that second quarter earnings per ADR of US$0.37 was 50% lower than his forecast, on US$50 million in translation losses and much higher-than-expected income tax rate. Adjusting earnings for the translation losses, earnings per ADR would be US$0.64, 15% lower than the analyst's forecast. Revenues totaled US$1.457 billion, 2.7% lower than the analyst's estimate of US$1.496 billion. Operating margin came in at 12%, compared with the analyst's forecast of 10.8%.
Since mid-May the stock has underperformed the Brazilian exchange by 17% and the analyst now sees limited downside from current levels. The stock is now trading at 9.9x P/E 2010 and shows a 4% upside to the analyst's new price target of US$19/ADR.
Currently, ERJ is up US$2.46 or 12.62% and trading at US$21.95.
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June 12, 2026 17:14 ET Major central bank action was the focus this week in economic news. The European Central Bank became the first major central bank to move in response to the rising inflationary pressures in the backdrop of the conflict in the Middle East. In North America, the U.S. inflation and trade data as well as Canada’s central bank decision gained attention. The Chinese trade data was the main news in Asia.