Embraer Slumps to Week-Low in Sao Paulo as Citigroup Says Sell

Embraer SA (EMBR3) fell to a one-week low after Citigroup Inc. advised selling the Brazilian planemaker’s stock on the potential for margins and revenue to trail analysts’ estimates.

The shares slumped 3.5 percent to 16.31 reais at 1:05 p.m. in Sao Paulo, set for the lowest closing level since April 17. It was the worst performer on the MSCI Brazil/Industrials Index, which fell 1.4 percent.

Citigroup analysts including Stephen Trent cut their rating on Embraer to sell from the equivalent of hold, citing the planemaker’s high valuation versus global aerospace peers as its backlog of orders declines. The Sao Jose dos Campos-based company’s firm order backlogs totaled 211 planes in the first quarter, below the 240 planes of a year earlier.

“Embraer is the only member of the group that has seen large, multi-year backlog declines and is alone in guiding towards lower 2013 commercial aircraft deliveries,” the analysts wrote in a research note. “While commercial jet, KC-390 and other order flow is likely, providing short-term trading opportunities, margins and revenue generation could disappoint as backlog quality declines.”

The planemaker has gained 13 percent this year, while Brazil’s Ibovespa stock benchmark fell 11 percent.

To contact the reporter on this story: Julia Leite in New York at jleite3@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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