Embraer’s Best Winning Streak in a Decade Pushes Ibovespa Higher

  • Brazilian planemaker seen less affected by supply problems
  • Stock index closed above 60,000 for first time since 2014

The Ibovespa rose as investors piled into Embraer SA after the planemaker announced orders from Chinese carriers amid speculation that supply-chain issues at its biggest rival would benefit the Brazilian company.

Embraer advanced for the eighth straight session, the longest streak since December 2005, helping push the benchmark stock index to a two-year high. For-profit college managers Kroton Educacional SA and Estacio Participacoes SA were among the best performers after HSBC Holdings Plc recommended buying them. State-controlled oil producer Petroleo Brasileiro SA followed gains in crude.

After Embraer lost more than half its market value in the first eight months of the year amid a surge in Brazil’s currency, which makes the country’s exports less competitive, investors are taking another look at the company and seeing value, according to Adeodato Volpi Netto, the head of capital markets at Eleven Financial Research in Sao Paulo.

"Embraer is a great and efficient manufacturer, with a very solid story," said Volpi Netto, who recommends buying the stock and has a target price almost 50 percent above the current level. "It suffered exaggeratedly a couple of months ago.”

The planemaker announced sales agreements with China Colorful Guizhou Airlines and Colorful Yunnan on Sept. 2. Embraer is seen less affected by supplier problems than rival Bombardier Inc., and its competitor’s delays may be beneficial, according to Nick Heymann, an analyst at William Blair in New York who rates the shares the equivalent of hold. Bombardier slashed its 2016 forecast for C Series jetliner deliveries Tuesday because of delays in shipments of Pratt & Whitney engines.

"You’re trying in essence to get a new supply chain for a new engine at the peak of the cycle," Heymann said. "It’s proven to be challenging, and Embraer is now likely to be perceived as less adversely affected than Bombardier."

The Ibovespa added 0.9 percent to 60,129.44 at the close of trading in Sao Paulo as 43 of its 58 stocks rose. The index is trading at 13.5 times estimated earnings, which is 16 percent above the one-year average. Embraer advanced 3.6 percent, while Estacio rose 5.7 percent and Kroton climbed 4.1 percent. Petrobras rose 1.1 percent. 

While Brazilian stocks are among the world’s best performers this year on optimism that the country’s new administration can navigate political gridlock to rein in a budget deficit and kickstart growth, newspaper reports that some government allies are pushing to delay debates on reforms until after the October municipal elections are testing investors’ patience. The delays are also causing strife with the PSDB, a major party backing President Michel Temer that’s advocating for faster implementation of the measures, said O Globo.

"If the PSDB jumps ship, that would kill all the recent optimism over Brazil’s rebound," Alexandre Espirito Santo, an economist at Orama Investimentos, said from Rio de Janeiro. "The price of the assets is not reflecting yet all those uncertainties."

Meatpacker JBS SA fell to a three-week low. Chief Executive Officer Wesley Batista gave testimony in a fraud investigation involving the nation’s pensions funds after police raided the offices of parent company J&F Investimentos and its pulp producer, Eldorado Brasil Celulose SA, early Monday, a press officer said. Newspaper O Estado de S. Paulo reported that the judge responsible for the case ordered 40 executives named in the probe to step aside at their respective companies. The judge’s decision would apply to Batista and his brother Joesley, who acts as J&F’s CEO and JBS’s chairman, the newspaper said. JBS said in a filing that it still hasn’t had access to the ruling.

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