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."
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."