Embraer posts Q4 results, can it break up the Boeing/Airbus duopoly?

Embraer (ERJ), the Brazil-based supplier of commercial aircraft and executive jets, released its Q4 earnings report. Shares are down 2% as the in line report led to some profit taking following a 26% rally since it"s February 26 breakout. The $21-22 area sets up as key support for the stock. 

ERJ reported earnings per share of $1.05, topped analyst expectations of $0.68. Revenue for the quarter decreased by 0.9% year-over-year to $1.98 billion, falling short of the $2 billion consensus. 

Both the Commercial Aviation and Executive Aviation segments contributed to the growth, with revenue increasing by 20% and 13%, respectively. In terms of deliveries, Embraer reported 75 jets delivered in Q4, including 25 commercial aircraft, 49 executive jets, and one military C-390. For the full year, the company delivered a total of 181 jets, representing a 13% increase from 2022. 

Despite these positive developments, Embraer acknowledged that it still faces supply chain bottlenecks, which hindered its performance in 2023. However, the company expects further improvements in the supply chain in 2024.

Embraer issued in-line guidance for FY24, projecting revenue of $6.0-6.4 billion for the year. This is in line with the $6.23 billion consensus. The company's confidence in its future growth is further evidenced by its announcement that its firm order backlog ended Q4 at US$18.7 billion, the highest figure recorded in the past six years. 

Looking ahead, Embraer guided for 2024 deliveries of 197 to 215 planes across its commercial and executive aviation divisions. to deliver 72 to 80 commercial aircraft and 125 to 135 executive jets. Revenue for 2024 is projected to be between $6 billion and $6.4 billion, up from $5.27 billion in 2023. 

In a recent development, Morgan Stanley named Embraer its new top pick in the aerospace sector, replacing TransDigm (TDG). Analyst Kristin Liwag views Embraer as a third major player in the commercial aerospace market, breaking into the duopoly of Boeing (BA) and Airbus (EADSY). Morgan Stanley has an overweight rating on ERJ stock and raised its price target to $40 from $19.50. 

ERJ experienced a volatile start to the day, initially surging in premarket trading before reversing course and falling 4% early Monday. The stock has been extended by about 16% following a March 1 breakout and had rallied 26.5% year-to-date through Friday's close. 

In conclusion, while Embraer's Q4 earnings and revenue figures may not have met expectations, the company's guidance for 2024 and its strong backlog suggest continued growth in the coming years. Despite supply chain challenges, Embraer remains confident in its ability to deliver on its commitments,with its various segments showing healthy revenue growth. With analysts predicting further growth in 2024 and Morgan Stanley's recent upgrade, ERJ stock could be poised for additional gains in the future. However, investors should monitor the company's progress in addressing its supply chain bottlenecks and maintaining its production levels.