Embraer Acquires Atech Fully

Zacks

Brazilian aircraft manufacturer Embraer SA’s (ERJ) unit Embraer Defense & Security entered into an agreement to acquire the remaining 50% shares of Atech Negócios em Tecnologia S.A. The deal is subject to certain closing conditions and regulatory approval.

The stake buyout will enable Embraer to gain full control over Atech, a developer of strategic command, control and intelligence solutions. Atech also provides expert consulting services as well as technical and logistical support.

Embraer in a drive to strengthen its Defense & Security unit had acquired a 50% stake in Atech in Apr 2011. The association has proved to be beneficial for the company. The 100% buyout will further bolster its business in the areas of systems, defense and security, and air traffic control.

Brazil would need to step-up security arrangement and logistic support ahead of major sporting events like the FIFA World Cup in 2014 and the Olympics in 2016. In the international arena, particularly in the Middle East and South Asian countries, there is an increasing urgency to beef up security arrangements. We believe Embraer armed with this developer of strategic command could clinch a few more deals.

Besides expanding its operations inorganically, Embraer’s recent launch of the E-2 commercial aircraft has the potential to gain market share in the commercial 70-130 seat market. This low cost, fuel efficient and spacious cabins are making the E-Jet commercial aircraft popular.

Despite these initiatives, Embraer continues to perform below market expectation, falling short of the Zacks Consensus Estimate in the last four quarters with an average earnings miss of 36.12%. Embraer SA retains a Zacks Rank #5 (Strong Sell).

However, there are other defense stocks performing well, with a favorable Zacks Rank. These are Lockheed Martin Corp. (LMT), Northrop Grumman Corp. (NOC) and L-3 Communications Holdings Inc. (LLL), each with a Zacks Ranks #2 (Buy).

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