Embraer Aims Higher

Last week, Motley Fool Stock Advisor selection Embraer (NYSE: ERJ  ) announced what's best described as modestly disappointing earnings. But there was much good news, too, including a massive 30% jump in the Brazilian jet-maker's backlog and $464 million in free cash flow from more efficient use of working capital. (FCF was negative in last year's Q3.)

Now, there's even more reason to be optimistic. On Friday, buried within a grander (sillier?) press release proclaiming massive 20-year gains for the regional jet industry, Embraer put forth its delivery projections for 2007 and 2008. And they look very good.

Management now says that the company will deliver at least 160 planes in 2007, and 195 in 2008. That would be up from a recently lowered total of 135 planes to be delivered during 2006, and it would represent at least 20% average annual growth over the next two years.

Revenue probably won't grow as quickly, however. As much as the accelerating delivery rate is excellent news, much of the jet-maker's good fortune can be traced to a well-timed exploitation of the executive jet market. Management says that between 15 and 20 of its 2008 deliveries are for the firm's Phenom 100 very light jets, which, at roughly $2.75 million each, are a fraction of the more than $30 million each spent by US Airways (NYSE: LCC  ) and Stock Advisor selection JetBlue (Nasdaq: JBLU  ) on their new E190 regional jets.

But even without counting the Phenoms, Embraer could still deliver 175 jets in 2008. That would equate to 14% average annual growth over two years. With regional jets still accounting for more than 70% of the business, it's a good bet that, if management's projections are duly conservative, sales would also grow by 14% or better over the same period.

Meanwhile, earnings, which last year rose 50% faster than sales according to Capital IQ, could grow by 20% or more for the next two years. Yet the shares still trade for slightly more than 16 times earnings. Am I the only one who thinks that's cheaper than a buffet of Thanksgiving leftovers?

Of course, there's no way to know for sure exactly how well Embraer will do from now till the dawn of '09. But a massive increase in the backlog supports management's thesis for higher future deliveries. So long as free cash flow continues to flow, and the balance sheet remains as strong as it is now (with more than $1.2 billion in net cash on the books), Embraer's shares have plenty of room left to soar. Fasten your seatbelts, Fools.

Taxi toward related Foolishness:

Embraerand JetBlue are both selections of theMotley Fool Stock Advisorstock-picking service. See all of the stocks that are helping David and Tom Gardner beat the S&P 500 by more than 44% as of this writing with a free, 30-dayall-access pass.

Fool contributorTim Beyers, ranked 1,669 out of 12,621 inMotley Fool CAPS, has yet to fly the new E190. He hopes to have a chance sometime within the next year. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. Get the skinny on which stocks he owns by checking Tim's Foolprofile. The Motley Fool'sdisclosure policysoars above Wall Street.


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