Bearish stock to watch: Embraer SA (NYSE: ERJ)

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Embraer SA (NYSE: ERJ) stock rose 0.36% on better than expected performance in the first quarter of FY 20. Embraer continues to evaluate the additional financing to further enhance its cash position. Due to the uncertainty related to the COVID-19 pandemic, financial and deliveries guidance for the Company’s 2020 results remains suspended at this point. Embraer has delivered five commercial jets and nine executive jets (five light / four large) in in the first quarter of FY 20, and the Company’s firm order backlog at the end of in the first quarter of FY 20 was US$ 15.9 billion. Embraer is dealing with the abrupt collapse of a planned deal with Boeing Co that happened in April. The company said that China and India could be potential new partners, and is studying a new five-year plan for new opportunities. The company is looking for partnerships that could involve products, engineering and production. However, the company made it clear that it is not currently negotiating with China’s state-owned COMAC, Russia’s Irkut or India on any potential deal to replace the one with Boeing.

The company has generated free cash flow of US$ (676.5) million in the first quarter of FY 20, which is in line with free cash flow of US$ (665.3) million reported in the first quarter of 2019, which is historically negative due to seasonal working capital consumption. Embraer’s liquidity remains strong as the Company ended the first quarter with total cash of US$ 2,500.6 million and major debt maturities starting in 2022 onwards. Total debt at the end of the first quarter of FY 20 of US$ 3,832.2 million, has a net debt position of US$ 1,331.6 million compared to the net debt of US$ 1,103.7 million in 1Q19.

Moreover, for the first quarter of FY 20, the company has reported EBIT and EBITDA of US$ (46.9) million and US$ 9.3 million, respectively, yielding EBIT margin of -7.4% and EBITDA margin of 1.5%. This is compares to EBIT of US$ (15.2) million (-1.8% EBIT margin) and EBITDA of US$ 30.9 million (3.8% EBITDA margin) in the first quarter of FY 19.

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