Why has the Rolls-Royce share price jumped, and what is next?

Rolls-Royce share price remains in a bull market as it jumped to 615p, its highest level since January 24. It has jumped by 95% in the last 12 months, bringing its market cap to over $67 billion. It is one of the top-performing members of the blue-chip FTSE 100 index.

Rolls-Royce Holdings has done well as demand for its products and services continued rising. This demand has risen across all its three main segments.

The core civil aviation business, which is its most important segment, is firing on all cylinders as demand remains high. Most airlines have fully recovered, with IATA estimating that airline profits will get to over $36.6 billion this year. Revenues will be over $1 trillion, a 4.4% annual increase, while passengers will get to 5.2 billion.

The civil aviation business is important for Rolls-Royce because it is the second-biggest engine manufacturer after General Electric. It also makes most of its money from long-term servicing contracts. Its top clients are companies like British Airways, Lufthansa, and Emirates. 

Rolls-Royce Holdings is a top player in the energy industry, making turbines and other power machinery. This segment has found a crucial catalyst in the ongoing power demand from the artificial intelligence industry. Its power equipment are being used to power some of the top data centers.

The power business has also benefited from the ongoing trend of modular nuclear reactors, an industry in which Rolls-Royce has extensive experience. 

Rolls-Royce share price has also done well because of the defense industry, where its business has continued doing well. Donald Trump has insisted that NATO members must boost their defense spending, a move that will benefit Rolls-Royce because it has a large defense division.

Altogether, these factors will help the company meet and surpass its timely targets. Its mid-term target is for the operating profit to be between £2.5 billion and £2.8 billion and its operating margin to get to between 13% and 15%.

Rolls-Royce also hopes that its free cash flow will get to between £2.5 billion and £3.1 billion. In its recent trading statement, the firm noted that the operating profit would be profit for the year would be between £2.1 billion and £2.3 billion despite the ongoing supply chain challenges. 

Rolls-Royce has also improved its balance sheet by paying substantial sums of debt, a move that has earned it an investment-grade rating with a positive outlook. 

The next key catalyst for the Rolls-Royce share price will come out on February 27 when the company publishes its financial results. These results will provide more information about whether it is being impacted by Trump’s tariffs on steel and aluminium.

Rolls-Royce share price analysis

The daily chart shows that the RR stock price has been in a strong bull run in the past few months. It has now formed an ascending channel that connects the highest and lowest swings since June last year. 

The stock has also moved above the 50-day Exponential Moving Average (EMA), a highly bullish factor. All oscillators like the Relative Strength Index (RSI) and the MACD indicator have continued rising. 

Therefore, the stock will likely keep rising as bulls target the key resistance point at $650. However, there is a risk that it will retest the lower side of the channel at 550p.