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Embraer SA Upgraded to Strong Buy

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On May 23, Zacks Investment Research upgraded Embraer SA (ERJ - Free Report) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Embraer SA reported solid result in the first quarter of 2014 on the back of strong performance by both the Defense & Security and Executive Jets segments. The company’s diversified product portfolio has also helped it to maintain a strong position in the aerospace industry.

The company’s first-quarter 2014 earnings surpassed the Zacks Consensus Estimate by 54.5%. The company registered a positive surprise in 3 out of the last 4 quarters with an average beat of 27.17%.

In the first quarter of 2014, the company’s sales from the Executive and Defense & Security segment increased by 52.5% and 56.7% year over year, respectively. The company has marginally increased its 2014 revenue guidance to a range of $6.0 billion to $6.5 billion from 2013 levels,

The company’s steady program execution capability has clinched a strong order in the first quarter of 2014. Embraer received a steady flow of orders in the first quarter, with a backlog of $19.2 billion, up 5.5% sequentially. The company’s firm order backlog reached its highest level since the second quarter of 2009, mainly due to orders received in the Commercial Aviation segment.

Recently, the Brazilian aerospace major secured a $7.2 billion reals ($3.26 billion) contract from Brazil's Air Force to provide 28 KC-390 cargo jets. This deal has the potential to steal the market from Lockheed Martin Corp.’s (LMT - Free Report) C-130 Hercules series. KC-390’s ability to execute various missions ranging from cargo and troop transport, cargo deployment, aerial refueling, search and rescue to combating forest fires and lower operating cost will likely make it popular in both the domestic and international market.

The company is also committed to invest in its research and product development program. For 2014, the company’s total expenditure comprises $0.08 billion of research and $0.3 billion of product development

Other Stocks to Consider

Other stocks worth considering in the same industry include The Boeing Company (BA - Free Report) and Huntington Ingalls Industries, Inc. (HII - Free Report) , both carrying a Zacks Rank #2 (Buy).

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