Will Embraer Stock Underperform The Broader Market?

by Trefis Team
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The shares of Embraer S.A. (NYSE: ERJ) have observed a strong rally after issuing full-year guidance last month. The company expects FY2021 revenues to range within $4 – $4.5 billion with a total of 145 commercial and executive aircraft deliveries – a slight improvement over FY2020. Moreover, the company’s order backlog of $15.9 billion is lower than pre-Covid levels of $16.8 billion. Embraer is a leading manufacturer of small commercial and business jets with a global customer base. The company’s Aviation and Defense segments contribute 58% and 24% of total revenues, respectively. According to the Trefis Machine Learning Engine, which identifies trends in the company’s historical stock price data, Embraer stock will likely gain 3.1% over the next one month (twenty-one trading days) considering the 14.1% growth in the past week (five trading days). (related: Textron Stock: Should You Ride The Momentum?)

But how would these numbers change if you are interested in holding Embraer stock for a shorter or a longer time period? You can test the answer and many other combinations on the Trefis Machine Learning Engine to test Embraer stock price forecast after a rise or fall. You can test the chance of recovery over different time intervals of a quarter, month, or even just one day!

MACHINE LEARNING ENGINE – try it yourself:

IF ERJ stock moved by -5% over five trading days, THEN over the next twenty-one trading days, ERJ stock moves an average of 1.6 percent, with a 52.1% probability of a positive return over this period.

Also, given a -5% movement for the stock over 5 trading days, it has historically witnessed an excess return of -0.8% compared to the S&P500 over the next 21 trading days, with a 41.8% percent probability of a positive excess return.

Some Fun Scenarios, FAQs & Making Sense of Embraer S.A. Stock Movements:

Question 1: Is the price forecast for Embraer S.A. stock higher after a drop?

Answer: Consider two situations,

Case 1: Embraer S.A. stock drops by -5% or more in a week

Case 2: Embraer S.A. stock rises by 5% or more in a week

Is the price forecast for Embraer S.A. stock higher over the subsequent month after Case 1 or Case 2?

ERJ stock fares better after Case 2, with an expected return of 1.5% over the next month (21 trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an expected return of 2.7% for Case 2. This implies a price forecast of $17.68 in Case 1 and a figure of $17.89 in Case 2 using ERJ market price of $17.42 on 9/28/2021.

In comparison, the S&P 500 has an expected return of 3.1% over the next 21 trading days under Case 1, and an expected return of just 0.5% for Case 2 as detailed in our dashboard that details the expected return for the S&P 500 after a rise or drop.

Try the Trefis machine learning engine above to see for yourself how the forecast for Embraer S.A. stock is likely to changes after any specific gain or loss over a period.

Question 2: Does patience pay?

Answer: If you buy and hold Embraer S.A. stock, the expectation is over time the near-term fluctuations will cancel out, and the long-term positive trend will favor you – at least if the company is otherwise strong.

Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!

For ERJ stock, the returns over the next N days after a -5% change over the last five trading days is detailed in the table below, along with the returns for the S&P500:

You can try the engine to see what this table looks like for Embraer S.A. after a larger loss over the last week, month, or quarter.

Question 3: What about the stock price forecast after a rise if you wait for a while?

Answer: The expected return after a rise is understandably lower than after a drop as detailed in the previous question. Interestingly, though, if a stock has gained over the last few days, you would do better to avoid short-term bets for most stocks – although ERJ stock appears to be an exception to this general observation.

ERJ’s returns over the next N days after a 5% change over the last five trading days is detailed in the table below, along with the returns for the S&P500:

It’s pretty powerful to test the trend for yourself for Embraer S.A. stock by changing the inputs in the charts above.

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