Please ensure Javascript is enabled for purposes of website accessibility

Why Embraer Stock Just Popped 13%

By Rich Smith – Jun 2, 2020 at 1:05PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Boeing's out, but other partners might want in.

What happened

Last month, Boeing (BA -6.08%) terminated its deal to purchase most of Brazilian airplane maker Embraer (ERJ -6.99%) for $3.8 billion, sending Embraer stock into a tailspin. Only a few days later, however, news that Chinese airplane builder COMAC might want to step in and pick up the pieces sent Embraer stock flying again.

Today, the prospect of a bidding war is helping lift Embraer shares even higher -- up 13.1% as of 1:40 p.m. EDT.

Embraer E190 jet.

Image source: Embraer.

So what

As Reuters confirmed this morning, in addition to the COMAC interest previously reported, companies in both India and Russia are also evaluating "partnerships" with Embraer. According to Embraer itself, such partnerships would be "faster and more efficient" than selling the company's commercial airplanes division (which Boeing had wanted) outright. They would not be "of the size that the company had with Boeing," instead being more along the lines of cooperative agreements to build various aircraft -- with the partners providing the cash.

Now what

Good news for Embraer, you say? Investors seem to think so, and I'd love to be able to confirm that -- after all, I own shares of Embraer stock myself.

The truth of the matter, though, is that Embraer's vague description of the partnerships it is exploring, their characterization as being "still in an embryonic stage" -- and also Embraer's admission that it lacks cash to develop new airplanes on its own, has "reduced all investments," and doesn't even presently have a long-term plan for running the commercial airplanes business (that it thought was going to be sold) -- all suggest to me that this is an airship in search of a rudder.

If you were you, I wouldn't be buying Embraer stock -- and if I were me, I'd be seriously considering selling. (And I am).

Rich Smith owns shares of Embraer Brazilian Aviation Co. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Embraer S.A. Stock Quote
Embraer S.A.
ERJ
$8.91 (-6.99%) $0.67
The Boeing Company Stock Quote
The Boeing Company
BA
$125.33 (-6.08%) $-8.11

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
332%
 
S&P 500 Returns
104%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.