Financial services giant J.P. Morgan in a report upgraded Embraer on improved earnings outlook ahead of the second quarter results. J.P. Morgan analyst Joseph B. Nadol III said the firm upgraded Embraer from underweight to neutral and increased the price target from $40 to $43.
"We are taking the opportunity to upgrade the stock in front of what we see as likely upward consensus estimate revisions after the company reports Q2 earnings," Nadol said before Embraer announced its second quarter results.
"However, our rating only advances to neutral rather than overweight due to the weak cash conversion we expect in both the short and longer term," he said.
Embraer has seen its stock rise amid reported new successes in sales. But its second quarter results were not as impressive as widely expected, mainly because of weak demand for business jets. Analysts say slowing Chinese economy may be affecting growth in business jets.
Embraer is also having to contend with robust competition from U.S. manufacturers.
The company's firm order backlog has grown to $17.1 billion, reaching its highest level since the third quarter of 2009, mainly as a result of commercial aviation growth.
Increased aircraft deliveries combined with defense and security business gave Embraer revenues of $1.56 billion during the second quarter. But the company hopes to improve sales, especially of its Legacy 650 jets. Embraer has a joint venture in China to manufacture the aircraft for the regional market.
Earlier this month Embraer Commercial Aviation and International Lease Finance Corp., a leader in the leasing and remarketing of jet aircraft to commercial airlines, signed the final agreement for 50 firm E-Jets E2 orders: 25 E190-E2s and 25 E195-E2s.
The $2.85 billion contract was originally made public at the Paris Air Show in June. The deal includes options for an additional 25 E190-E2s and 25 E195-E2s, bringing the potential order to up to 100 aircraft.
Embraer says its state-of-the-art engines, aerodynamically advanced wings and flight controls will result in double-digit improvements in fuel burn, maintenance costs, emissions and external noise.
Despite the company's expansion to 65 customers across 45 countries Embraer's aircraft range still faces competition from U.S. and other supplies and the prospect of a slowing demand.
Embraer S.A. is the world's largest manufacturer of commercial jets of up to 120 seats capacity. The has headquarters in Sao Jose dos Campos, and operations in China, the United States, France, Portugal and Singapore.