Rolls-Royce share price analysis: July 23rd and Aug 1st will be key

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on Jul 8, 2024
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  • Rolls-Royce stock has beaten the FTSE 100, Nasdaq 100, and Bitcoin this year.
  • The company’s business is doing well as demand for its products and services rise.
  • The focus will be on the upcoming GE and Rolls-Royce earnings.

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Rolls-Royce (LON: RR) share price has had a spectacular run as it jumped by more than 50% this year. It has beaten other popular assets like the FTSE 100 and Nasdaq 100 indices. Also, the stock has done better than Bitcoin, which has suffered a harsh reversal in the past few months and has risen by 35% this year. 

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Positive internal and macro factors

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Rolls-Royce stock price has thrived since 2020, helped by positive internal and external factors. Internally, the company has moved past its Trent 1000 engine issues that led to major losses a few years ago.

It has also appointed a new chief executive who has focused on making the company more profitable. As part of his approach, Rolls-Royce has ended its ambitious projects like its electric planes.

At the same time, he has continued to slash costs with layoffs and other consolidations. In October last year, the company announced that it would slash 2,500 workers across all its segments. These layoffs are in addition to the thousands it shed during the pandemic.

The management believes that a leaner organisation will be more productive and profitable. In May, the company reaffirmed its forward guidance that pointed to steady revenue and profitability growth.

As a result, analysts are upbeat about its operations. The average consensus is that its underlying revenue will reach £16.8 billion in FY’24 followed by £18.13 billion in 2025 and £19.4 billion in FY’26. 

Most importantly, they expect that its business will see robust free cash flows (FCF). The FCF is expected to rise from £1.93 billion in 2024 to £2.7 billion in 2026 and £3.17 billion in 2027. These numbers will make it one of the most profitable industrial companies in the UK. 

Risks and valuation concerns

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Rolls-Royce share price has done well as investors believe that it has a bright future as demand for civil aerospace and defense industry rise. 

However, there are a few risks to consider. First, there is a risk that the ongoing layoffs could affect the quality of its engines. We have seen many industrial companies being affected as the management focused on profitability. 

Boeing is the best example of this. In the past few months, Boeing has become a case study of when cost cuts goes wrong. By focusing so much on profits, the company failed to implement major safety precautions that have led to major public relations issues. 

The other risk is the stock seems to be highly overvalued. Rolls-Royce has a market cap of over £38.56 billion, its highest valuation in years. This valuation means that it is trading at a 12x multiple of the estimated 2027 free cash flow, which is not cheap. The stock is also trading at a forward 2027 PE ratio of 16.8. It will likely maintain this pricey valuation if it continues to deliver strong financial results.

Rolls-Royce stock price will next react to the upcoming General Electric Aviation (GE) earnings scheduled on July 23rd. Its first-half results will come out on August 1st. GE’s earnings will provide more information about the state of the aviation industry.

Rolls-Royce share price forecast

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Rolls-Royce

RR chart by TradingView

The weekly chart shows that the RR stock price has been in a strong bullish trend in the past few years. It has soared above the key resistance point at 378.3p, its highest point in July 2018.

The stock formed a golden cross on the weekly chart in August last year. It has then remained above this level since then. Also, the Relative Strength Index (RSI) and the MACD have continued rising.

Therefore, the stock will likely remain in this range ahead of the GE and Rolls-Royce earnings. The key levels to watch will be at 500p and 400p.

Rolls-Royce Holdings UK Manufacturing Stock Market Trading Ideas