Rolls-Royce share price has a 50.5% upside as rare pattern forms

The Rolls-Royce (LON: RR) share price has moved sideways in the past few months. The stock was trading at 150p on Monday ahead of a busy week in the aviation industry as the Paris Air show kicks off. This price is a few points below the year-to-date high of 159.90p.

Paris Air show orders

The biggest aviation story of this week will be the Paris Air Show. This is a big event that brings together the biggest players in the aviation industry. It is a vital event where airlines and manufacturers make big announcements.

There are several announcements that are expected this week. For example, according to WION, Indigo, a leading Indian company, is planning to make a record 500 aircraft order with Airbus, the biggest aircraft manufacturer in Europe.

The announcement will come a few months after Air India announced a giant 470 order from Boeing and Airbus. Two of the biggest Saudi Arabia’s airlines ordered 121 planes while United Airlines ordered over 100 Boeing 787 planes last year. 

The Paris Air show is an important part of companies like Rolls-Royce Holdings because of the potential orders that could come. The most recent results showed that the company has backlogs worth over £8.5 billion. It expects to deliver between 400 and 500 engines, higher than the 355 it delivered last year.

Rolls-Royce Holdings believe that its operating profit for the year will be between £0.8 billion and £1 billion this year. This will be an improvement from the £652 million it made in 2022. Its free cash flow is expected to jump from £505 million to between £0.6 billion and £0.8 billion. 

Analysts believe that Rolls-Royce share price is undervalued. Those at Barclays and UBS believe that the shares will rise to 156p and 200p. At the same time, a DCF calculation shows that the fair value for the stock is 305p, signaling that it has a 50.5% upside.

Rolls-Royce share price forecast

RR stock chart by TradingView

The daily chart shows that the RR stock price has been in a consolidation phase in the past few months. It has formed a cup and handle pattern, which is a sign of a bullish continuation. The stock is now forming the handle section of this pattern. 

It has moved slightly above the 25-day and 50-day moving averages. Therefore, there is a likelihood that the stock will ultimately have a bullish breakout as buyers target the next resistance point at 200p, as I wrote here.