This year, Boeing stock (NYSE:BA) has been like a wounded bird due to worries of a recession; nevertheless, one analyst at CFRA says that it may be ready to take flight soon.
Boeing Stock Plummets
The company that makes airplanes has had its stock plummet by 34% this year, far worse than the 17% decline that the Dow Jones Industrial Average (DJI) has seen.
Wall Street is concerned about the potential impact a downturn in global economic activity may have on demand for Boeing’s jets. The high level of debt that Boeing stock now has not helped improve market mood, particularly at a period of rising interest rates and in light of the lack of clarity around when the FAA would approve the 737 Max 10.
Concerns over Boeing’s financial situation were addressed in a recent research note by CFRA analyst Colin Scarola, who stated, “We think this apprehension is unfounded.”
The following is further information on Scarola’s aggressive call on Boeing Co (NYSE:BA):
The desired price is set at $252 (reiterated)
Rating: Strong Buy (reiterated)
It is expected that the stock price will go 92% higher.
Why Scarola believes that fears over Boeing’s current debt position are exaggerated
Scarola says, “Boeing does not have any outstanding debt with a variable interest rate, which means that rising interest rates would not harm the company’s profitability.” In addition, “we anticipate that the company will be able to cover all of its future debt maturities out of free cash flow without the requirement of refinancing at higher rates.”
The analyst continued by saying that “even if our free cash flow assumptions are wrong, the company can comfortably meet its $5.4 billion of debt maturities left in 2022 and 2023 by dipping into its enormous cash pile of $11.4 billion, once again avoiding the need to refinance at higher rates.”
According to Scarola, the number of deliveries made by Boeing “should grow regardless of the recession.”
Scarola indicated that the market may have gotten carried away in pricing a full-blown recession, even though a recession would undoubtedly affect the demand for Boeing stock.
“Another reason we think shares have been beaten down this year is anxiety that a worldwide recession would prevent the planemaker’s delivery rates from returning higher,” Scarola said. “This is another reason we think shares have been beaten down this year.” “Because of restrictions in the supply chain, delivery rates are already at lower levels… below levels seen during severe recessions. We believe this to be incorrect. This indicates that regardless of the state of the economy, Boeing should be able to increase its deliveries so long as the workforce and material shortages continue to improve, as we anticipate that they will. As an illustration, Boeing delivered forty airplanes per month in the second quarter. On the other hand, if the supply chain could maintain the same delivery-to-backlog ratio as it did in 2017-2018, we anticipate that there would be sixty deliveries per month.”
In addition, Scarola discussed his perspective on the stock if a significant economic downturn occurs.
“A severe recession in aviation is improbable given the robust trajectory of travel demand,” he added, “but if this did occur, we estimate Boeing jet demand would decline around 15%.” “We think a severe recession in aviation is unlikely given the healthy trajectory of travel demand.” “This would result in a demand for around 51 planes each month, which is 28% more than the pace of 40 seen in Q2 of this year. We believe the market is overlooking the potential near-term catalyst of a homegrown mRNA vaccine being approved in China. In addition to the high likelihood that Boeing deliveries will rise strongly regardless of the recession, we also believe that the market is overlooking this potential catalyst. We believe that this would make it possible to lift the lockdowns and would make it necessary to resume 737 MAX deliveries to Chinese airlines.”
Featured Image – Megapixl © Michaelvi
Author Valerie Remorosa 
