Embraer S.A. – ADS (ERJ) posted strong results in the first quarter of fiscal 2011 with EPADS of $0.58, surpassing the Zacks Consensus Estimate of $0.34. The company's higher sales, improved margins, strong firm order backlog and solid cash management strategy appear encouraging.
Moreover, Embraer's expansion in China, Central Asia, Europe, Middle East and Africa as well as its diversification into government security and defense mechanism along with the corporate jets are expected to bring in steady growth going forward. Hence, we upgraded the stock to an Outperform recommendation.
Our long-term Outperform recommendation on the stock indicates that it would outperform the broader U.S. equity market. Our $37.00 target price, 17.5x 2011 EPADS reflects this view.
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