Rolls-Royce share price forecast: buy, sell, or hold?

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on Jun 10, 2024
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  • Rolls-Royce stock price has soared by over 1,239% from its lowest point in 2020.
  • The company’s key businesses like civil aviation and defense are doing well.
  • There are some risks about the company’s elevated valuation.

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The Rolls-Royce (LON: RR) share price has gone bonkers in the past few years. It has surged to a record high of 467p, giving it a market cap of over £38 billion or $48 billion. Most importantly, it has jumped by more than 1,239% from its lowest level during the pandemic. 

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Rolls-Royce is firing on all cylinders

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Rolls-Royce Holdings has become one of the best-performing companies in the FTSE 100 index in the past four years. This recovery accelerated in 2023 after Tufan Erginbilgiç became CEO and announced profitability targets for the company.

The rally also happened as other industrial giants surged. In the United States, General Electric Aviation’s stock has surged to a record high in the past few months. It has also soared by more than 500% from its lowest point in 2020. Similarly, in France, the Safran share price has jumped by over 322% from the pandemic low.

There are several reasons why the Rolls-Royce Holdings stock has more upside to go. First, there are signs that the civil aviation industry will continue thriving in the next few years. In a report last week, IATA noted that airline profits will jump to over $30 billion this year. 

This is an important move for Rolls-Royce Holdings, a company that manufactures aircraft engines. It aso makes most of its money in long-term service contracts by large airline companies like Emirates, Turkish Airlines, and Lufthansa. 

The defense industry is also expected to thrive in the coming months as governments boost their national security. This trend is happening in countries like the UK, United States, and France. The estimate is that annual spending will grow to over $2.2 trillion, helped by the US. 

Further, there are signs that Rolls-Royce’s power business will continue doing well in the coming years. A key driver for this segment will be its Battery Energy Storage Solutions (BESS). It is also benefiting from the ongoing demand for artificial intelligence solutions.

Still, there are concerns about Rolls-Royce Holdings’ valuation now that the stock has surged to a record high. Data compiled by SeekingAlpha shows that the company’s forward price-to-earnings ratio stands at 30.21, higher than the sector median’s 21. It is also higher than the forward S&P 500 ratio of 21. 

Therefore, the company will need to execute perfectly as it seeks to achieve its mid-term targets. These targets call for its operating profit to rise from £1.6 billion in 2023 to between £2.5 and £2.8 billion in the mid-term. The operating margin is expected to jump to between 13% and 15%.

The management also hopes that its engines will not develop any issues as we saw a few years ago when its Trent engines cost it billions. Also, there are hopes that companies like Airbus and Boeing will ramp up their production.

Rolls-Royce share price forecast

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Rolls-Royce share price

RR chart by TradingView

Turning to the weekly chart, we see that the RR stock price has been in a strong bull run in the past few years. This rebound accelerated when the shares moved above the crucial resistance point at 149.80, its highest swing in September 2021 in July last year. 

The stock also formed a golden cross pattern as the 50-week and 200-week Exponential Moving Averages (EMA) crossed each other. Most recently, the stock has jumped above the resistance at 378.8p, its highest swing in January 2018. 

Therefore, the path of the least resistance is higher, with bulls targeting the psychological point at 500p. This view will be confirmed if it rises above this month’s high of 467p. 

Rolls-Royce Holdings UK Manufacturing Stock Market Trading Ideas