Rolls-Royce share price sends mixed signals before earnings: buy or sell?

Rolls-Royce share price pumped on Tuesday and was hovering near its all-time high of 1,013p. It has increased by 75% this year, surpassing the FTSE 100 Index, which has risen by 11%. 

RR stock price has jumped by over 1,000% in the last five years, while the Footsie has soared by 55% in the same period. This surge has increased its market capitalization to over $113.26 billion, making it the eighth-largest company in the UK. 

High bar before Rolls Royce earnings

The Rolls-Royce share price will be in the spotlight on Thursday after the company publishes its financial results. These earnings come at a time when its stock is at an all-time high and its valuation multiples are in an uptrend.

Rolls-Royce stock now trades at a substantial premium compared to its peers and its history. The company trades at a forward price-to-earnings ratio of 42, much higher than the sector median of 23.

Therefore, these multiples mean that the company needs to publish strong half-year results and upgrade its financial estimates. 

Some analysts are still optimistic that the company has more upside to go in the coming months. For example, in a statement, an analyst at Panmure Liberum said more upside will depend on its profit upgrade. 

The analyst believes that the company’s half-year sales and operating profit will account for a similar share as they did for the full-year in 2024. 

Analysts are upbeat about RR growth

The consensus figures published on its website indicate that analysts anticipate continued growth. They expect that the underlying revenue will be £19.2 billion this year, while the underlying EBIT and profit before tax will jump to £2.87 billion and £2.73 billion, respectively.

These numbers will then continue growing, with its revenue hitting £23.7 billion in 2028 and the EBIT and PBT moving to £4.013 billion and £4.015 billion, respectively. 

Rolls-Royce’s free cash flow is expected to be £4.49 billion in 2028, up from the expected £2.8 billion.

There are indications that Rolls-Royce may publish strong results on Thursday. For one, some of its biggest competitors have recently published strong numbers, pushing their shares much higher. 

For example, GE Vernova stock surged to a record high after saying that its revenue jumped by 11% to $9.1 billion in the second quarter. GEV competes with Rolls-Royce in the power segment

Similarly, GE Aerospace, its biggest competitor, soared to $273, up by 71% from its lowest point this year. Its stock jumped after it published strong results and boosted its forward guidance.

GE’s orders jumped by 27% to $14.2 billion, while its adjusted revenue and operating profits jumped to $10.2 billion and $2.3 billion, respectively. Therefore, since these two companies operate in the same industry, there is a likelihood that it too will release good numbers. 

In its recent trading update, the company maintained its forward operating profit and free cash flow of between £2.7 billion and £2.9 billion. 

Rolls-Royce share price technical analysis

RR stock price chart | Source: TradingView

The daily chart shows that the RR stock price has been in a strong bull run in the past few years. It has crossed the important milestone of 1,000p, as we predicted here and here. 

On the positive side, the stock is much higher than the 50-day and 100-day moving averages, a sign that bulls are in control. However, on the other hand, the Relative Strength Index (RSI) has formed a descending channel, a sign of bearish diverge pattern.

Therefore, the stock’s outlook is neutral, with the bearish divergence pointing to a pullback to 950p. The alternative scenario is where the stock continues to rally, with the next target being at 1,100p.