Shares of the airplane manufacturer have tanked 34% year to date, badly lagging the Dow Jones Industrial Average’s (^DJI) 17% drop.
The Street has voiced concern over how a global economic slowdown could weigh on demand for Boeing’s planes. Boeing’s high debt position hasn’t helped investor sentiment either, particularly in a time of rising interest rates and given the uncertain timeline for FAA approval of the 737 Max 10.
“We think this fear is misplaced,” CFRA analyst Colin Scarola wrote in a new note about the concerns over Boeing’s debt position.
Here are more details from Scarola’s aggressive call on Boeing:
Price Target: $252 (reiterated)
Rating: Strong Buy (reiterated)
Stock price movement assumed: +92%
Why Scarola thinks concerns about Boeing’s debt position are overblown
“Boeing has no floating rate debt outstanding, meaning rising interest rates won’t impact its earnings, all else equal,” Scarola explained. “Further, we expect the firm can repay all future debt maturities out of free cash flow without the need to refinance at higher rates.”
The analyst added that “even if our free cash flow projections miss, the firm can easily cover its $5.4 billion of debt maturities remaining in 2022 and 2023 by tapping into its large cash pile of $11.4 billion, again avoiding the need to refinance at higher rates.”
Scarola: Boeing deliveries ‘should rise regardless of recession’
Although a recession would certainly impact demand for Boeing, Scarola suggested that the market may have gotten carried away in pricing a full-blown recession.
“Another reason we think shares have been beaten down this year is fear that a global recession will keep the planemaker’s delivery rates from recovering upward,” Scarola wrote. “We think this is wrong because delivery rates are already depressed… below severe recession levels by supply chain constraints. This means that as long as the labor and material shortages continue to taper, which we expect they will, Boeing deliveries should rise regardless of recession. To illustrate, in Q2, Boeing delivered 40 planes per month. But if the supply chain could handle the deliveries-to-backlog ratio it managed during 2017-2018, we estimate deliveries would be 60 per month.”
Boeing 737-8JP, from Norwegian (Andre Bjerke Livery) company takes off from the Barcelona airport on 26th June 2022. (Photo by Urbanandsport/NurPhoto via Getty Images)
Scarola also provided his outlook on the stock should a severe recession materialize.
“We think a severe recession in aviation is unlikely given the healthy trajectory of travel demand, but if this did occur we estimate Boeing plane demand would fall roughly 15%,” he said. “This would result in demand for roughly 51 planes per month, 28% above the Q2 rate of 40. In addition to the high likelihood of Boeing deliveries rising strongly regardless of recession, we think the market is overlooking the potential near-term catalyst of a homegrown mRNA vaccine being approved in China. We think this would allow lockdowns to end and necessitate resumption of 737 MAX deliveries to Chinese airlines.”
WASHINGTON (Reuters) -Boeing Co does not anticipate winning approval for the 737 MAX 10 before next summer, according to a Federal Aviation Administration (FAA) letter sent on Monday that intensifies concerns about the company’s timeline for deliveries. Boeing faces a December deadline to win regulatory approval for the MAX 10, which is slightly larger than current 737 MAXs in service, as well as for a smaller variant, the MAX 7. Unless it gains an extension from Congress, Boeing must meet new modern cockpit-alerting requirements that could significantly delay the planes’ entry into service.
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Shares of Boeing (NYSE: BA), which have trailed the broader market in recent months, were particularly strong on Monday, up more than 5% on a day when investors are shopping for potential bargains. Boeing shares have been hit particularly hard in recent months. In fact, Boeing announced a number of new jet orders during the period, a sign that demand is holding up.
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STORY: More than 50 years after gangrene left Hryhoriy Yanchenko without legs and fingers. He’s showing his fighting spirit remains intact by joining the Ukrainian resistance in occupied Kherson. These videos shared on social media in June show the 75 year old driving his mobility cart through the city, playing the Ukrainian anthem and collecting donations for soldiers. He wears a blue-striped jersey and sky-blue beret from the Soviet paratroop unit in which he served. Reuters was able to verify the location of the videos, but not the date they were filmed. “Every day at 9 am I left on my wheelchair and every day I felt as if I was on a minefield. You go somewhere and may never come back home. But I just felt like a Ukrainian, felt like a patriot of sorts.” Yanchenko served in the Soviet airborne forces in the 1960s and has been trying to support Ukrainian soldiers since 2014, first organizing a benefit concert and then collecting food and other supplies. In the last six months, Yanchenko said he’s raised more than $16,000. The money has been used by a Ukrainian group to buy sniper scopes, rifle accessories and clothing. Some of the money was even donated by Russian soldiers, Yanchenko says with a laugh. But after being confronted by a member of Russia’s internal security service, Yanchenko knew it was time to leave Kherson, his home for 57 years. He hid for three days with a friend before making a pre-dawn crossing of the Dnipro River. “You understand, I am 75 years old. I was scared that if they found my phone, or laptop, or saw something of the sort, I wouldn’t be able to take these challenges at this age. This is all… very, very frightening.” Yanchenko is now in Ukrainian-held Zaporizhzhia where he continues to collect donations.
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