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Embraer (ERJ) to Sell Three E190 Aircraft to Nordic Aviation

Embraer S.A. ERJ recently announced that it has signed a firm contract to sell three E190 aircraft to Nordic Aviation Capital, the global leader in regional aircraft leasing.

The agreement was announced as a Letter of Intent at the Farnborough Air Show, held in July 2018. Per the Embraer's list prices, the order is valued at $156 million and it will get reflected in the Embraer's fourth-quarter 2018 backlog.

A Brief Note on E190 Aircraft

The Embraer E190 aircraft was introduced to the company’s jet family at the Paris Air Show in 1999, which then went into production in the year 2002. The company’s narrow-body short-to-medium range twin-engine jet airliners can carry up to 70-130 passengers commercially. The E190 aircraft incorporates fly-by-wire technology that helps reduce the workload on pilot and improves aircraft performance coupled with minimization of weight and maintenance. Also, the advanced range of E190 aircraft fleet can carry a full load of passengers up to 2,819.2 miles.

This E190 series of Embraer aircraft has been a commercial success primarily on account of its ability to efficiently serve lower-demand routes while offering many of the same amenities and features of larger jets.

Our View

Embraer enjoys strong order growth for its commercial aircraft across the globe. During the third quarter of 2018, the company successfully secured a $1.1-billion contract from the United Airlines for delivering 25 of its E175 jets coupled with two of its E175s to Mauritania Airlines and 10 of its E195-E2s jets to Wataniya from Kuwait. Going forward, due to its vast expertise in the Aerospace Sector, the company strives to achieve more such sizeable contracts. These massive orders should boost its top line, in the days to come.

Moreover, in July, aerospace giant Boeing BA and Embraer entered into a strategic joint venture (JV) worth $4.75 billion, which is expected to improve the latter’s cash position by approximately $1 billion on the deal’s closure. This in turn, will create more investment opportunities in its upcoming aviation projects.

Per Embraer’s latest Market Outlook, the world will need 10,550 new planes with a seating capacity of 150 between 2018 and 2037. Embraer projects that in next 20 years, the total number of airplanes in the 150-seat category will reach to 16,000 in service. Such strong demand for aircraft will bolster the aviation services market, which would further benefit major commercial jet makers like Embraer.

Price Movement

Embraer’s stock has rallied about 12.8% in a year compared with the industry’s growth of 2%. This outperformance was primarily led by robust worldwide demand for its commercial, executive and military jets.

Zacks Rank & Key Picks

Embraer currently carries a Zacks Rank #3 (Hold). Two better-ranked stocks in the same industry are Lockheed Martin Corporation LMT and Engility Holdings, Inc. EGL, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Lockheed Martin pulled off average earnings surprise of 13.92% for the trailing four reported quarters. The Zacks Consensus Estimate for 2018 earnings has moved 2.9% north to $17.51 in the last 60 days.

Engility Holdings delivered average earnings surprise of 19.98% for the last four reported quarters. The Zacks Consensus Estimate for 2018 earnings has been revised 4% upward to $2.10 in the last 60 days.

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