Intrinsic value of Embraer ADR - ERJ

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$18.26

  Intrinsic Value

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  Value-price divergence*

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$18.26

 
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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of ERJ stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 3.3

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  5.58
  7.30
  7.07
  6.86
  6.68
  6.51
  6.36
  6.22
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
  5.58
  5.53
  5.47
  5.43
  5.38
  5.35
  5.31
  5.28
  5.25
  5.23
  5.20
  5.18
  5.17
  5.15
  5.13
  5.12
  5.11
Revenue, $m
  6,777
  21,784
  23,324
  24,925
  26,589
  28,320
  30,120
  31,995
  33,946
  35,980
  38,099
  40,310
  42,616
  45,024
  47,538
  50,165
  52,911
  55,782
  58,785
  61,927
  65,216
  68,659
  72,265
  76,042
  79,999
  84,146
  88,492
  93,048
  97,825
  102,834
  108,087
Variable operating expenses, $m
 
  19,910
  21,317
  22,780
  24,300
  25,882
  27,527
  29,239
  31,022
  32,880
  34,817
  36,829
  38,937
  41,136
  43,434
  45,834
  48,343
  50,966
  53,710
  56,581
  59,585
  62,731
  66,026
  69,477
  73,092
  76,881
  80,852
  85,014
  89,379
  93,955
  98,755
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  6,550
  19,910
  21,317
  22,780
  24,300
  25,882
  27,527
  29,239
  31,022
  32,880
  34,817
  36,829
  38,937
  41,136
  43,434
  45,834
  48,343
  50,966
  53,710
  56,581
  59,585
  62,731
  66,026
  69,477
  73,092
  76,881
  80,852
  85,014
  89,379
  93,955
  98,755
Operating income, $m
  227
  1,874
  2,007
  2,145
  2,289
  2,438
  2,594
  2,756
  2,924
  3,100
  3,283
  3,480
  3,679
  3,887
  4,104
  4,331
  4,568
  4,816
  5,076
  5,347
  5,631
  5,928
  6,239
  6,565
  6,907
  7,265
  7,640
  8,034
  8,446
  8,879
  9,332
EBITDA, $m
  630
  3,020
  3,233
  3,455
  3,686
  3,925
  4,175
  4,435
  4,705
  4,987
  5,281
  5,587
  5,907
  6,241
  6,589
  6,954
  7,334
  7,732
  8,148
  8,584
  9,040
  9,517
  10,017
  10,540
  11,089
  11,664
  12,266
  12,898
  13,560
  14,254
  14,982
Interest expense (income), $m
  180
  685
  803
  924
  1,050
  1,181
  1,317
  1,459
  1,606
  1,760
  1,919
  2,086
  2,260
  2,441
  2,631
  2,828
  3,035
  3,251
  3,477
  3,713
  3,960
  4,219
  4,489
  4,773
  5,070
  5,381
  5,707
  6,049
  6,407
  6,783
  7,177
Earnings before tax, $m
  176
  1,189
  1,204
  1,221
  1,239
  1,257
  1,277
  1,297
  1,318
  1,340
  1,363
  1,394
  1,420
  1,446
  1,474
  1,503
  1,533
  1,565
  1,599
  1,634
  1,671
  1,709
  1,750
  1,793
  1,837
  1,884
  1,933
  1,985
  2,039
  2,096
  2,155
Tax expense, $m
  -11
  321
  325
  330
  334
  339
  345
  350
  356
  362
  368
  376
  383
  390
  398
  406
  414
  423
  432
  441
  451
  462
  473
  484
  496
  509
  522
  536
  551
  566
  582
Net income, $m
  185
  868
  879
  891
  904
  918
  932
  947
  962
  978
  995
  1,018
  1,036
  1,056
  1,076
  1,097
  1,119
  1,143
  1,167
  1,193
  1,220
  1,248
  1,278
  1,309
  1,341
  1,375
  1,411
  1,449
  1,488
  1,530
  1,573

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  3,109
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  12,020
  37,238
  39,870
  42,607
  45,451
  48,410
  51,488
  54,692
  58,028
  61,504
  65,127
  68,906
  72,848
  76,964
  81,262
  85,753
  90,446
  95,354
  100,488
  105,859
  111,481
  117,366
  123,530
  129,986
  136,751
  143,839
  151,269
  159,057
  167,222
  175,785
  184,765
Adjusted assets (=assets-cash), $m
  8,911
  37,238
  39,870
  42,607
  45,451
  48,410
  51,488
  54,692
  58,028
  61,504
  65,127
  68,906
  72,848
  76,964
  81,262
  85,753
  90,446
  95,354
  100,488
  105,859
  111,481
  117,366
  123,530
  129,986
  136,751
  143,839
  151,269
  159,057
  167,222
  175,785
  184,765
Revenue / Adjusted assets
  0.761
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
Average production assets, $m
  4,065
  12,526
  13,411
  14,332
  15,289
  16,284
  17,319
  18,397
  19,519
  20,688
  21,907
  23,178
  24,504
  25,889
  27,334
  28,845
  30,424
  32,075
  33,802
  35,608
  37,499
  39,479
  41,552
  43,724
  46,000
  48,384
  50,883
  53,503
  56,249
  59,130
  62,150
Working capital, $m
  3,710
  3,202
  3,429
  3,664
  3,909
  4,163
  4,428
  4,703
  4,990
  5,289
  5,601
  5,926
  6,265
  6,619
  6,988
  7,374
  7,778
  8,200
  8,641
  9,103
  9,587
  10,093
  10,623
  11,178
  11,760
  12,369
  13,008
  13,678
  14,380
  15,117
  15,889
Total debt, $m
  3,874
  15,152
  17,437
  19,813
  22,282
  24,850
  27,521
  30,302
  33,198
  36,215
  39,360
  42,640
  46,062
  49,635
  53,365
  57,263
  61,337
  65,597
  70,053
  74,715
  79,595
  84,704
  90,054
  95,658
  101,530
  107,682
  114,131
  120,891
  127,979
  135,411
  143,206
Total liabilities, $m
  8,054
  32,322
  34,607
  36,983
  39,452
  42,020
  44,691
  47,472
  50,368
  53,385
  56,530
  59,810
  63,232
  66,805
  70,535
  74,433
  78,507
  82,767
  87,223
  91,885
  96,765
  101,874
  107,224
  112,828
  118,700
  124,852
  131,301
  138,061
  145,149
  152,581
  160,376
Total equity, $m
  3,966
  4,915
  5,263
  5,624
  6,000
  6,390
  6,796
  7,219
  7,660
  8,118
  8,597
  9,096
  9,616
  10,159
  10,727
  11,319
  11,939
  12,587
  13,264
  13,973
  14,715
  15,492
  16,306
  17,158
  18,051
  18,987
  19,967
  20,996
  22,073
  23,204
  24,389
Total liabilities and equity, $m
  12,020
  37,237
  39,870
  42,607
  45,452
  48,410
  51,487
  54,691
  58,028
  61,503
  65,127
  68,906
  72,848
  76,964
  81,262
  85,752
  90,446
  95,354
  100,487
  105,858
  111,480
  117,366
  123,530
  129,986
  136,751
  143,839
  151,268
  159,057
  167,222
  175,785
  184,765
Debt-to-equity ratio
  0.977
  3.080
  3.310
  3.520
  3.710
  3.890
  4.050
  4.200
  4.330
  4.460
  4.580
  4.690
  4.790
  4.890
  4.980
  5.060
  5.140
  5.210
  5.280
  5.350
  5.410
  5.470
  5.520
  5.580
  5.620
  5.670
  5.720
  5.760
  5.800
  5.840
  5.870
Adjusted equity ratio
  0.096
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132
  0.132

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  185
  868
  879
  891
  904
  918
  932
  947
  962
  978
  995
  1,018
  1,036
  1,056
  1,076
  1,097
  1,119
  1,143
  1,167
  1,193
  1,220
  1,248
  1,278
  1,309
  1,341
  1,375
  1,411
  1,449
  1,488
  1,530
  1,573
Depreciation, amort., depletion, $m
  403
  1,146
  1,226
  1,310
  1,397
  1,487
  1,581
  1,679
  1,781
  1,888
  1,998
  2,107
  2,228
  2,354
  2,485
  2,622
  2,766
  2,916
  3,073
  3,237
  3,409
  3,589
  3,777
  3,975
  4,182
  4,399
  4,626
  4,864
  5,114
  5,375
  5,650
Funds from operations, $m
  -703
  2,013
  2,105
  2,201
  2,301
  2,405
  2,513
  2,626
  2,743
  2,866
  2,994
  3,125
  3,264
  3,409
  3,561
  3,719
  3,885
  4,059
  4,240
  4,430
  4,629
  4,837
  5,055
  5,284
  5,523
  5,774
  6,037
  6,313
  6,602
  6,905
  7,223
Change in working capital, $m
  -605
  218
  226
  235
  245
  254
  265
  276
  287
  299
  312
  325
  339
  354
  370
  386
  404
  422
  441
  462
  483
  506
  530
  555
  582
  610
  639
  670
  702
  736
  772
Cash from operations, $m
  -98
  3,454
  1,879
  1,966
  2,056
  2,151
  2,249
  2,351
  2,457
  2,567
  2,682
  2,800
  2,925
  3,055
  3,191
  3,333
  3,482
  3,637
  3,799
  3,968
  4,145
  4,331
  4,525
  4,728
  4,941
  5,164
  5,398
  5,643
  5,900
  6,169
  6,451
Maintenance CAPEX, $m
  0
  -1,062
  -1,139
  -1,219
  -1,303
  -1,390
  -1,480
  -1,574
  -1,672
  -1,774
  -1,881
  -1,992
  -2,107
  -2,228
  -2,354
  -2,485
  -2,622
  -2,766
  -2,916
  -3,073
  -3,237
  -3,409
  -3,589
  -3,777
  -3,975
  -4,182
  -4,399
  -4,626
  -4,864
  -5,114
  -5,375
New CAPEX, $m
  -981
  -848
  -886
  -920
  -957
  -995
  -1,035
  -1,078
  -1,122
  -1,169
  -1,219
  -1,271
  -1,326
  -1,384
  -1,446
  -1,511
  -1,579
  -1,651
  -1,727
  -1,807
  -1,891
  -1,980
  -2,073
  -2,172
  -2,275
  -2,384
  -2,499
  -2,620
  -2,747
  -2,880
  -3,021
Cash from investing activities, $m
  -1,069
  -1,910
  -2,025
  -2,139
  -2,260
  -2,385
  -2,515
  -2,652
  -2,794
  -2,943
  -3,100
  -3,263
  -3,433
  -3,612
  -3,800
  -3,996
  -4,201
  -4,417
  -4,643
  -4,880
  -5,128
  -5,389
  -5,662
  -5,949
  -6,250
  -6,566
  -6,898
  -7,246
  -7,611
  -7,994
  -8,396
Free cash flow, $m
  -1,167
  1,544
  -146
  -174
  -203
  -234
  -267
  -302
  -338
  -377
  -418
  -463
  -508
  -557
  -608
  -662
  -720
  -780
  -844
  -912
  -983
  -1,058
  -1,137
  -1,221
  -1,309
  -1,402
  -1,500
  -1,602
  -1,711
  -1,825
  -1,945
Issuance/(repayment) of debt, $m
  53
  2,223
  2,285
  2,375
  2,469
  2,568
  2,672
  2,781
  2,896
  3,017
  3,145
  3,280
  3,422
  3,572
  3,731
  3,898
  4,074
  4,260
  4,456
  4,662
  4,880
  5,109
  5,350
  5,604
  5,871
  6,153
  6,449
  6,760
  7,088
  7,432
  7,794
Issuance/(repurchase) of shares, $m
  2
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  37
  2,223
  2,285
  2,375
  2,469
  2,568
  2,672
  2,781
  2,896
  3,017
  3,145
  3,280
  3,422
  3,572
  3,731
  3,898
  4,074
  4,260
  4,456
  4,662
  4,880
  5,109
  5,350
  5,604
  5,871
  6,153
  6,449
  6,760
  7,088
  7,432
  7,794
Total cash flow (excl. dividends), $m
  -1,362
  3,767
  2,139
  2,201
  2,266
  2,334
  2,405
  2,479
  2,558
  2,640
  2,727
  2,817
  2,914
  3,016
  3,123
  3,236
  3,355
  3,480
  3,612
  3,751
  3,897
  4,051
  4,213
  4,383
  4,562
  4,751
  4,949
  5,158
  5,377
  5,607
  5,850
Retained Cash Flow (-), $m
  654
  -334
  -348
  -361
  -376
  -391
  -406
  -423
  -440
  -459
  -478
  -499
  -520
  -543
  -567
  -593
  -620
  -648
  -678
  -709
  -742
  -777
  -814
  -852
  -893
  -936
  -981
  -1,028
  -1,078
  -1,130
  -1,185
Prev. year cash balance distribution, $m
 
  10,030
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  13,463
  1,792
  1,840
  1,890
  1,943
  1,998
  2,056
  2,117
  2,182
  2,249
  2,318
  2,393
  2,472
  2,555
  2,643
  2,735
  2,832
  2,934
  3,042
  3,155
  3,274
  3,399
  3,531
  3,670
  3,815
  3,969
  4,130
  4,299
  4,477
  4,664
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  12,908
  1,640
  1,601
  1,557
  1,506
  1,450
  1,389
  1,323
  1,253
  1,179
  1,101
  1,021
  940
  858
  776
  695
  616
  540
  468
  401
  339
  282
  231
  187
  148
  116
  89
  67
  49
  35
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Embraer S.A. designs, develops, manufactures, and sells aircraft and systems in Brazil, North America, Latin America, the Asia Pacific, Europe, and internationally. It operates through Commercial Aviation, Executive Jets, Defense & Security, and Other Related Businesses segments. The Commercial Aviation segment develops, produces, and sells commercial jets; and provides support services, as well as leases aircrafts. Its products include ERJ 145 family, EMBRAER 170/190 family, and E-Jets family of commercial aircrafts. The Executive Jets segment develops, produces, and sells executive jets; and offers support services, as well as leases aircrafts. It provides Legacy 600 and Legacy 650 executive jets in the super midsize and large categories; Legacy 450 and Legacy 500 executive jets in the midlight and midsize categories; Phenom executive jets in the entry jet and light jet categories; and Lineage 1000, an ultra-large executive jet. The Defense & Security segment engages in the research, development, production, modification, and support for military defense and security aircraft, as well as a range of products and integrated solutions that include radars, special space systems (satellites), and information and communications systems, such as command, control, communications, computer, intelligence, surveillance and reconnaissance (C4ISR) systems. The Other Related Businesses segment is involved in the supply of structural parts, and mechanical and hydraulic systems; and production of agricultural crop-spraying aircraft. The company was formerly known as Embraer-Empresa Brasileira de Aeronáutica S.A. and changed its name to Embraer S.A. in November 2010. Embraer S.A. was founded in 1969 and is headquartered in São José dos Campos, Brazil.

FINANCIAL RATIOS  of  Embraer ADR (ERJ)

Valuation Ratios
P/E Ratio 72.5
Price to Sales 2
Price to Book 3.4
Price to Tangible Book
Price to Cash Flow -136.9
Price to Free Cash Flow -12.4
Growth Rates
Sales Growth Rate 5.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 19.6%
Cap. Spend. - 3 Yr. Gr. Rate 5.4%
Financial Strength
Quick Ratio 6
Current Ratio 0.1
LT Debt to Equity 84.4%
Total Debt to Equity 97.7%
Interest Coverage 2
Management Effectiveness
Return On Assets 2.8%
Ret/ On Assets - 3 Yr. Avg. 2.4%
Return On Total Capital 2.2%
Ret/ On T. Cap. - 3 Yr. Avg. 2.8%
Return On Equity 4.3%
Return On Equity - 3 Yr. Avg. 5.1%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 19.9%
Gross Margin - 3 Yr. Avg. 19.4%
EBITDA Margin 11.2%
EBITDA Margin - 3 Yr. Avg. 12.5%
Operating Margin 3.3%
Oper. Margin - 3 Yr. Avg. 5.8%
Pre-Tax Margin 2.6%
Pre-Tax Margin - 3 Yr. Avg. 5.3%
Net Profit Margin 2.7%
Net Profit Margin - 3 Yr. Avg. 3.1%
Effective Tax Rate -6.3%
Eff/ Tax Rate - 3 Yr. Avg. 33%
Payout Ratio 17.3%

ERJ stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ERJ stock intrinsic value calculation we used $20302 million for the last fiscal year's total revenue generated by Embraer ADR. The default revenue input number comes from 2016 income statement of Embraer ADR. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our ERJ stock valuation model: a) initial revenue growth rate of 7.3% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for ERJ is calculated based on our internal credit rating of Embraer ADR, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Embraer ADR.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of ERJ stock the variable cost ratio is equal to 91.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for ERJ stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.3% for Embraer ADR.

Corporate tax rate of 27% is the nominal tax rate for Embraer ADR. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the ERJ stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for ERJ are equal to 57.5%.

Life of production assets of 11 years is the average useful life of capital assets used in Embraer ADR operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for ERJ is equal to 14.7%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $14611 million for Embraer ADR - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 182.366 million for Embraer ADR is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Embraer ADR at the current share price and the inputted number of shares is $3.3 billion.


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COMPANY NEWS

▶ How Flying Cars Will Boost Intel, Uber and Airbus   [Jun-26-17 06:00AM  Investopedia]
▶ PARIS: Embraer secures new E2 jet business   [09:19AM  Flightglobal]
▶ Embraer cites nuance in Bombardier CSeries disputes   [Jun-06-17 01:21PM  Flightglobal]
▶ AirBaltic eyes order for at least 14 jets   [Jun-05-17 05:23PM  Reuters]
▶ ETFs with exposure to Embraer SA : May 19, 2017   [May-19-17 01:51PM  Capital Cube]
▶ Brazil's Stocks Fall As Corruption Scandal Hits Pro-Business President   [May-18-17 04:09PM  Investor's Business Daily]
▶ Why JetBlue Airways Just Might Stick With Embraer   [May-08-17 04:35PM  Motley Fool]
▶ Here's how to avoid the most dreaded seat on a plane   [May-04-17 09:11AM  Business Insider]
▶ Embraer warns on E-Jet E2 margins, deliveries in 2018   [May-02-17 01:03PM  Flightglobal]
▶ Embraer misses 1Q profit forecasts   [06:33AM  Associated Press]
▶ [$$] Boeing Files Petition With Commerce Dept. Over Bombardier   [Apr-27-17 06:06PM  The Wall Street Journal]
▶ Is Falling Embraer Worth Consideration?   [Apr-20-17 01:34PM  Investopedia]
▶ Embraer business jet deliveries drop in Q1   [Apr-17-17 12:45PM  American City Business Journals]
▶ KAI wins aerostructure work on Embraer platforms   [Apr-12-17 10:01PM  Flightglobal]
▶ Top Ranked Growth Stocks to Buy for March 31st   [Mar-31-17 10:54AM  Zacks]
▶ Is JetBlue Ready to Dump Its Smallest Planes?   [Mar-20-17 01:35PM  at Motley Fool]
Stock chart of ERJ Financial statements of ERJ Annual reports of ERJ
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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