Embraer SA (ERJ, Financial) recently experienced a daily gain of 6.26%, contributing to a 3-month gain of 11.73%. Despite these positive movements, the company has reported a Loss Per Share of $0.03. Investors may wonder if the current stock valuation accurately reflects the company's performance and potential. Is Embraer SA (ERJ) modestly overvalued? This article will delve into the company's valuation to provide a comprehensive answer. We invite readers to explore our in-depth analysis to better understand Embraer SA's market position.
Company Introduction
Embraer SA, headquartered in Sao Paulo, Brazil, is a prominent manufacturer of regional aircraft, business jets, and defense and security products, along with offering a range of services to support its extensive installed base. The company's focus on the development of the KC-390 military transport aircraft bolsters its defense and security business. With operations spanning Commercial Aviation, Defense and Security, Executive Aviation, Service and Support, and Other Segments, Embraer SA generates the majority of its revenue from the Commercial Aviation segment. A comparison between the current stock price of $17.49 and the GF Value of $15.52 suggests a potential misalignment with the stock's intrinsic value, prompting a closer examination of Embraer SA's fair market value.
Summarizing the GF Value
The GF Value is a proprietary metric that represents the intrinsic value of a stock, calculated using historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. Embraer SA (ERJ, Financial) is currently estimated to be modestly overvalued with a market cap of $3.40 billion. The stock's price of $17.49 per share suggests that it may not be aligned with its GF Value, potentially indicating lower future returns relative to the company's business growth.
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Financial Strength Assessment
Before investing in any stock, assessing the company's financial strength is crucial. Companies with poor financial strength pose a higher risk of permanent loss. Embraer SA's cash-to-debt ratio of 0.6 is lower than 51.53% of its industry peers, indicating a weaker financial position. The company's overall financial strength is rated 4 out of 10, suggesting that Embraer SA's financial health is not robust.
Profitability and Growth Insights
Investing in profitable companies usually carries less risk, particularly if they have consistently demonstrated profitability over time. Embraer SA has been profitable in 5 out of the past 10 years. With revenues of $4.70 billion and a Loss Per Share of $0.03 in the past 12 months, its operating margin of 3.78% is below 59.6% of its industry counterparts. GuruFocus ranks the company's profitability as fair.
Company growth is a vital valuation factor, as faster growth typically generates more value for shareholders. Embraer SA's average annual revenue growth is 2.1%, ranking below 54.14% of the companies in its industry. However, its 3-year average EBITDA growth rate of 6% is more favorable, outpacing 62.23% of its peers.
ROIC vs. WACC Comparison
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) is another method to gauge profitability. Embraer SA's ROIC of 32.38 suggests that it is effectively generating cash flow relative to the capital invested. Given that this is significantly higher than its WACC of 6.54, the company appears to be creating value for its shareholders.
Conclusive Valuation Thoughts
In conclusion, Embraer SA (ERJ, Financial) appears to be modestly overvalued. The company's financial condition is poor, and its profitability is rated as fair. Nevertheless, its growth prospects seem promising, as indicated by its favorable growth rank within the Aerospace & Defense industry. To gain further insight into Embraer SA's financials, interested parties can review the company's 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
