Embraer Aims for 100 Annual Deliveries, but High Valuation and Execution Risks Persist

What happened

Embraer's commercial executive announced plans to restore annual jet deliveries to around 100 units within two years, capitalizing on a recent order boom that has fueled a record $31.3 billion backlog. This target aligns with the company's base case scenario for gradual ramp-up, supported by strong demand in regional and executive aviation segments. However, the DeepValue report underscores significant headwinds, including U.S. tariffs costing $35-40 million annually and Eve's eVTOL project adding a $100 million EBITDA drag, which compressed 3Q25 EBIT margins to 8.6% from 17.6% a year earlier. Despite revenue growth and credit upgrades to BBB, supply-chain bottlenecks and ongoing capital demands from Eve introduce execution risks that could hinder delivery goals. With the stock up 73% over the past year to ~$64, trading at 43x trailing EPS, much of the backlog conversion success is already priced in, leaving limited room for error.

Implication

Embraer's push toward 100 annual deliveries reinforces the backlog narrative but does little to alleviate near-term profitability concerns from tariffs and Eve losses, which have already eroded margins. Success depends critically on overcoming supply-chain constraints that have historically capped output, with any delivery misses likely to trigger a stock de-rating given the high multiples. The investment-grade credit rating offers some downside protection, but net leverage at 1.03x EBITDA provides scant buffer if margin recovery stalls or Eve's funding needs escalate. Eve's ongoing certification and capital intensity add operational uncertainty, potentially diverting management focus and resources from core jetmaking operations. At current prices near the base case implied value of $66, the risk-reward skews negative, favoring a wait-and-see approach until clearer evidence of execution and margin improvement emerges.

Thesis delta

The new article confirms Embraer's ambitious delivery targets, which are already incorporated into the DeepValue report's base case and do not alter the core investment thesis. No material shift is warranted; the thesis remains centered on flawless backlog conversion, margin recovery, and controlled Eve drag, with the stock's valuation offering limited margin of safety. Investors should continue monitoring FY25 results and 2026 guidance for signs of execution slippage or tariff escalation that could exacerbate downside risks.