Rolls-Royce Holdings share price continued its spectacular rally last week as it jumped to a record high of 537p. This surge means that it has risen by over 80% this year, making it a better performer than most companies in the FTSE 100 index.
RR has outperformed most of its global peers like RTX Corp – the parent of Pratt & Whitney -, Safran, and Lockheed Martin. It has lagged behind that of General Electric Aviation, which has risen by 91% as investors cheer its strong demand and its separation from GE Vernova.
Industrial and airline earnings
The Rolls-Royce share price surged as American and European companies started to publish their financial results.
In its case, investors will be watching the performance of airlines and industrial companies like GE Aviation, Safran, and RTX.
Airlines are an important part of Rolls-Royce Holdings because it makes over 50% of its revenue in the sector. It generates income by selling engines like the Trent 7000, Trent 1000, Trent XWB, Trent 900, and others.
After selling these engines, the company generates substantial sums of money in selling parts through its TotalCare brand. In this, it enters long-term service contracts, where it does maintenance for these engines.
Therefore, a sign that the civil aviation industry is doing well will be a positive thing for Rolls-Royce and other companies.
Delta, the biggest airline in the US, published relatively strong financial results last week, which has made it continue its strong rebound. The shares have jumped by over 40% since August 5.
Other airlines will publish their results in the next few weeks. United Airlines will release their numbers on August 15, while American Airlines is set to release on October 24. IAG, the parent company of British Airlines, and one of its biggest customers, will publish its results on November 8.
Other companies like Emirates, Etihad, Lufthansa, and KLM will also release their results n the coming weeks.
At the same time, Rolls-Royce industrial peers will also release their results. GE, the biggest player in the industry, will release its numbers on October 22. RTX and Lockheed Martin will also publish their numbers on the same day, while Safran will do it on the 25th.
Rolls-Royce Holdings earnings
Rolls-Royce Holdings, on the other hand, will issue its trading update on November 7. In its last update in August, the company said that its business continued doing well in the first half of the year.
Underlying revenue rose to £8.1 billion, while its operating margin expanded from 9.7% to 14%. Also, the return on capital rose from 9% in H1’23 to 13.8% in the year’s first half.
These numbers are more evidence that the company is making progress in its turnaround strategy. For example, its efficiency and simplification process, will save the company over £250 million by the end of the year.
The company has also embraced the zero-based budgeting approach, which it aims to save between 10% and 15% in the medium term.
All the three parts of Rolls-Royce continued doing well in the period. Civil aviation revenue rose by 27% to £4.1 billion, while its free cash flow jumped to £1.038 billion.
In defence, revenue jumped to £2.2 billion, helped by its submarines and combat business. This demand will continue because of the AUKUS partnership between the United States, UK, and Australia.
The power systems business is also doing well as its revenue rose by 6% to £1.8 billion. This growth is benefiting from resilient demand, especially by technology companies that are investing in the artificial intelligence and data centers. This robust demand has pushed it to boost its production and prices.
What next for the Rolls-Royce share price?
Technically, there are signs that the RR stock price will continue rising ahead of its November earnings. On the daily chart, it has remained above all moving averages, meaning that bulls are in control.
It has also jumped above the key resistance point at 536p, the upper side of the bullish flag pattern that has been forming. This pattern is made up of a long vertical line and a rectangle, and is one of the most bullish signs in the market.
Therefore, based on trend-following principles, there is a likelihood that the stock will continue soaring in the near term. If this happens, the next point to watch will be at 600p.
Fundamentally, however, there are concerns about the company’s valuation since its forward P/E ratio stands at 36, higher than the industry median of 23. Still, on the positive side, a discounted free cash flow (DCF) calculation shows that its fair value is 1,154p, which is about 53% above the current level.
I believe that Rolls-Royce shares will continue rising through the end of the year. Next year, however, could be different as some investors start to take profits.
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