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Rolls-Royce surges to a three year high on ambitious plans


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Fundamental and technical outlook on the Rolls-Royce share price.

Rolls-RoyceSource: Bloomberg
 
 Chris Beauchamp | Chief Market Analyst, London | Publication date: 

Rolls-Royce surges to a three year high on ambitious plans

Engineer Rolls-Royce has already seen its shares surge 80% this year, but the firm’s plans for the future could provide further upside impetus.

Rolls-Royce, the renowned British engineering company, has reached a new three-year high following its recent update. The firm has outlined its plans to enhance operating profit and margins, aiming to fortify its position as a stronger and more resilient entity. This strategic move is undoubtedly attracting attention from investors who value stability and growth.

One notable aspect of Rolls-Royce's recovery is the steady rebound of its total revenues from the adverse effects of the pandemic. As the global economy gradually recovers, the company's financials are reflecting this positive trend. This is a testament to the resilience and adaptability of the firm, as it navigates the challenges posed by the ongoing crisis.

Furthermore, income investors are eagerly awaiting the return of dividends from Rolls-Royce, which is expected to occur next year. The prospect of receiving a share of the company's profits is undoubtedly enticing for those seeking a reliable income stream. This development not only signals the company's confidence in its future prospects but also serves as a positive signal for the broader market.

Investors have certainly shown optimism in the past six months, driving up the stock of Rolls-Royce by 80 percent. This surge has been driven by hopes the management team can hit their ambitious targets.

However, despite this impressive rally, Rolls-Royce still lags behind its rival Safran in terms of valuation. The market currently values Rolls-Royce at a one-quarter discount to Safran based on projected earnings for the year 2025. This discrepancy suggests that investors are not fully convinced that Rolls-Royce will be able to deliver on its targets and close the gap with its competitor, though if it can make progress the shares could make further strides higher.

Analyst ratings for Rolls-Royce

Refinitiv data shows a consensus analyst rating of ‘buy’ for Rolls-Royce – 4 strong buy, 6 buy and 8 hold - with the mean of estimates suggesting a long-term price target of 255.76 pence for the share, 2% below where it is trading at the moment (29 November 2023).

Rolls-Royce analystSource: Refinitiv

Technical outlook on the Rolls-Royce’s share price

The Rolls-Royce share price is on track to reach the 61.8% Fibonacci retracement of the 2014-to-2020 decline at 287.6p, above which lies the July 2016 peak at 300.4p.

Rolls-Royce Monthly Candlestick Chart

Rolls-Royce Monthly Candlestick ChartSource: TradingView

The acceleration to the upside seen since Tuesday in an already steep uptrend points to further upside being seen in the near future as momentum usually takes a while to fade.

While last week’s reaction low at 234.5p underpins on a daily chart closing basis, the short-term uptrend will remain intact. The longer-term uptrend will stay valid as long as the Rolls-Royce share price trades above its 196.45p late-October low.

Rolls-Royce Daily Candlestick Chart

Rolls-Royce Daily Candlestick ChartSource: TradingView

 

 

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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