Is this the end of the Rolls-Royce share price rally?

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on Apr 22, 2024
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  • Rolls-Royce share price has surged by over 1,060% from its lowest point in 2020.
  • The company’s business is booming as the civil aviation demand continues.
  • Its competitors like General Electric and Safran will publish its earnings this week.

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Rolls-Royce Holdings (LON: RR) share price has pulled back in the past few days as the rally of global stocks faded. It retreated to a low of 391p this month, a big drop from the year-to-date high of 434p. Still, despite this retreat, the stock remains 1,060% above its lowest point in 2020. It is also the first monthly decline since November last year.

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GE and Safran earnings ahead

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Rolls-Royce Holdings has surged hard in the past few years as investors cheered the performance of its key segments like civil aviation, defense, and power.

Its civil aviation division, which accounts for over 50% of its total revenue, has jumped sharply in the past few years as global travel has rebounded. Most airlines have published strong revenue growth as the load factor increased.

The defense division is benefiting from the rising geopolitical issues around the world. Ukraine is still battling Russia while Israel is in a fierce battle with Hamas. 

There are signs that the AUKUS partnership will expand, with Japan set to join. All these are important developments since Rolls-Royce Holdings is a major millitary contractor. 

Meanwhile, the management has put in place ambitious revenue and profitability targets. As part of this transition, the management expects to grow its operating margin in the civil aerospace division to between 15% and 17% from the current 11.6%. 

It also intends to grow its defence margin from 13.8% to between 14 and 16% and its power segment from 10.4% to 12% and 14%. To achieve that, the company is shedding some of its least profitable ventures and embracing new models like partnerships.

For example, instead of building a separate narrow body engine business, the firm intends to make partnerships. It also hopes to sell its electrical-advanced air mobility business. 

Looking ahead, Rolls-Royce is not expected to publish any market-moving reports soon. The most likely catalysts for the stock will be the upcoming roadshows in Toronto, Chicago, and Denver. It will then publish its financial results in August.

The likely catalyst for the RR share price will be financial results from its competitors. GE Aviation will release its results on Tuesday while Safran will publish its results on April 26th. 

Rolls-Royce share price forecast

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Rolls-Royce share price

RR chart by TradingView

The Rolls Royce stock price has pulled back in the past few weeks, possibly because of profit-taking and the rising industrial metal prices. These pullbacks are common when an asset is in a strong uptrend. It has remained above all moving averages.

It is still above the crucial support level at 380.2p, its highest swing on July 30th 2018. The Relative Strength Index (RSI) has pulled back from the extremely overbought point of 92 to 76. Also, the Percentage Price Oscillator (PPO) has moved above the neutral point.

Therefore, the outlook for the stock is still bullish, with the initial target to watch being at 443p, its all-time high. Before this happens, there is a likelihood that it will retest the crucial support level at 380p in a process known as a break and retest.

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