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On February 11, 2013, we upgraded our recommendation on aircraft manufacturing company, Embraer S.A. (ERJ - Analyst Report) from Underperform to Neutral based on its improved prospects. Embraer, which focuses on the commercial and defense jets market, holds a Zacks #3 Rank (Hold).

Why the Upgrade?

Embraer maintains a series of healthy contracts, along with tie-ups with many established market players. Also, the company invests plenty of time and resources for the invention of new technologies and launch of new products, which are efficient and more advanced.

The company intends to launch its second generation E-Jets in the year 2018. Around a week back, Embraer entered into an agreement with Honeywell International Plc., to procure advanced avionics systems of the latter for its new E-Jets. Embraer is keen on having superior suppliers for its new E-jets, so that an enhanced and efficient version of the product can be delivered. For this purpose, it also selected Pratt and Whitney Canada International Inc. last month, to deliver engines for the jets.

The company is expected to release its fourth quarter 2012 results on March 22, 2013. The Zacks Consensus Estimate stands at 84 cents, with an expected year-over-year growth of around 208.0%. With the current Zacks Rank and an Earnings ESP (Read: Zacks Earnings ESP: A Better Method) of 0.00%, the company is likely to perform in line with the market expectations.

Other Stocks to Consider

Besides Embraer, other stocks in the aviation sector that are currently performing well include European Aeronautic Defence and Space Company EADS N.V. (EADSY)  which carries a Zacks Rank #1 (Strong Buy), along with Lockheed Martin Corporation (LMT - Analyst Report) and Huntington Ingalls Industries Inc. (HII - Snapshot Report); both carrying a Zacks Rank #2 (Buy).

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