Critical Survey: Embraer-Empresa Brasileira de Aeronautica (NYSE:ERJ) & Textron (TXT)

Embraer-Empresa Brasileira de Aeronautica (NYSE: ERJ) and Textron (NYSE:TXT) are both mid-cap aerospace companies, but which is the superior business? We will compare the two companies based on the strength of their dividends, analyst recommendations, institutional ownership, risk, profitabiliy, earnings and valuation.

Valuation & Earnings

This table compares Embraer-Empresa Brasileira de Aeronautica and Textron’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Embraer-Empresa Brasileira de Aeronautica $6.11 billion 2.38 $386.38 million $0.57 34.68
Textron $13.68 billion 0.95 $1.53 billion $3.27 14.83

Textron has higher revenue and earnings than Embraer-Empresa Brasileira de Aeronautica. Textron is trading at a lower price-to-earnings ratio than Embraer-Empresa Brasileira de Aeronautica, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares Embraer-Empresa Brasileira de Aeronautica and Textron’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Embraer-Empresa Brasileira de Aeronautica 1.76% 9.15% 2.97%
Textron 6.45% 11.97% 4.34%

Institutional and Insider Ownership

49.7% of Embraer-Empresa Brasileira de Aeronautica shares are owned by institutional investors. Comparatively, 82.7% of Textron shares are owned by institutional investors. 1.0% of Embraer-Empresa Brasileira de Aeronautica shares are owned by insiders. Comparatively, 1.1% of Textron shares are owned by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company will outperform the market over the long term.

Dividends

Embraer-Empresa Brasileira de Aeronautica pays an annual dividend of $0.21 per share and has a dividend yield of 1.1%. Textron pays an annual dividend of $0.08 per share and has a dividend yield of 0.2%. Embraer-Empresa Brasileira de Aeronautica pays out 36.8% of its earnings in the form of a dividend. Textron pays out 2.4% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years.

Analyst Recommendations

This is a summary of current ratings and recommmendations for Embraer-Empresa Brasileira de Aeronautica and Textron, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Embraer-Empresa Brasileira de Aeronautica 0 3 4 0 2.57
Textron 2 3 6 0 2.36

Embraer-Empresa Brasileira de Aeronautica presently has a consensus target price of $21.75, suggesting a potential upside of 10.02%. Textron has a consensus target price of $53.44, suggesting a potential upside of 10.22%. Given Textron’s higher possible upside, analysts clearly believe Textron is more favorable than Embraer-Empresa Brasileira de Aeronautica.

Risk and Volatility

Embraer-Empresa Brasileira de Aeronautica has a beta of 0.35, suggesting that its stock price is 65% less volatile than the S&P 500. Comparatively, Textron has a beta of 1.56, suggesting that its stock price is 56% more volatile than the S&P 500.

Summary

Textron beats Embraer-Empresa Brasileira de Aeronautica on 13 of the 16 factors compared between the two stocks.

Embraer-Empresa Brasileira de Aeronautica Company Profile

Embraer S.A. (Embraer) is a manufacturer of jets of 70 to 130 seats. The Company produces aircraft for commercial and executive aviation, and for defense and security purposes and related services. Its segments include Commercial aviation business, which involves the development, production and sale of commercial jets, and rendering of support services, particularly in the regional aviation segment and aircraft leases; Executive Jet business, which markets its executive jets to companies, including fractional ownership companies, charter and air-taxi companies, high-net-worth individuals and to flight academies; Defense and Security Business segment, which conceives, designs, develops, manufactures and supports a range of integrated solutions for the defense and security market, and Other Related Businesses segment, which provides fuel systems, structural parts, and mechanical and hydraulic systems to Sikorsky Aircraft Corporation for its production of helicopters.

Textron Company Profile

Textron Inc. is a multi-industry company engaged in aircraft, defense, industrial and finance businesses to provide customers with products and services across the world. The Company operates through five segments: Textron Aviation, Bell, Textron Systems, Industrial and Finance. The Textron Aviation segment is engaged in general aviation. The Bell segment supplies military helicopters and support to the United States Government and to military customers outside the United States. The Textron Systems segment is a supplier to the defense, aerospace and general aviation markets. The Industrial segment designs and manufactures a range of products within three product lines: fuel systems and functional components, specialized vehicles and equipment, and tools and test equipment. The Finance segment is a commercial finance business that consists of Textron Financial Corporation (TFC) and its subsidiaries.

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