Is Republic Airways' Bankruptcy Weighing On Embraer?

Cowen's Cai von Rumohr downgraded the rating on

from Outperform to Market Perform, while lowering the price target from $39 to $29. "While 2016 delivery/revenue prospects are mostly intact, RJ margins are under pressure despite the likely FX tailwind," von Rumohr mentioned. The company reported its Q4 EPS below the consensus and the estimates, despite the 9¢ charge for

financial guarantees. The Q4 revenue also missed expectations, despite "decent" Defense sales, driven by a 4-5 percent shortfall in Commercial Aviation and Bizjets. The EBIT also missed expectations by a substantial amount due to a $101 million charge for financial guarantees associated with Republic Airways' bankruptcy, as well as weak Bizjet margin and Defense loss of $11 million, driven by additional FX-related impact. On a more positive note, below-the-line items led to a net tailwind of 9¢ versus the estimates, while seasonally strong free cash flow significantly beat the estimate, driven by lower working capital. According to the Cowen report, "RJET had 24 E175's on order at the time of its bankruptcy, 9 for delivery this year and 15 for 2017. Nevertheless, ERJ sounds confident that given strong U.S. demand, all of them will be taken by U.S. customers, allowing the company to hit its indicated 2016 delivery target of 105-110 RJ's." The EPS estimate for 2016 has been reduced by 65¢ to $1.95.