The Rolls-Royce share price retreated on June 26, even after the company received positive news from China. The stock fell to 1,410p, a few points below this week’s high of 1,532p. Despite today’s pullback, the shares could resume their upward trend in the coming months as multiple bullish catalysts continue to build.
Rolls-Royce share price may benefit from a new Airbus order
RR stock is in the spotlight after Airbus secured a new large order from China Eastern Airlines. The company will deliver 25 A330 jets in a deal valued at over $9.35 billion.
These jets will be delivered between 2029 and 2033, a move that will benefit Rolls-Royce since it is the only supplier of these engines. It uses Trent 7000 engines, which cost between $30 million and $35 million.
Rolls-Royce stock reacted mildly to this report because it will start making money from the deal in the next three years. Also, while this is a big deal, it is a small part in its backlog.
Rolls-Royce is benefiting from the resumption of flying
Rolls-Royce is also benefiting from the ongoing recovery of the civil aviation industry after the brief disruption caused by the US-Iran war. Data shows that flying has gone back to normal, and this trend will accelerate in the near term as jet fuel prices continue falling.
Data compiled by IATA shows that the average jet fuel price has retreated to $119, down by 24% from the same period last month. This retreat may lead to more flying over time, a move that will increase the average flying hours. A recent report said that its large engine flying hours soared by 5% to 115% of 2019 levels. It expects that the annual EFH will be between 115% and 120% of 2019 levels.
At the same time, aluminium and other raw materials have continued falling in the past few weeks. It has dropped in the last four consecutive weeks, the longest losing streak since April this year. This retreat is happening as supplies from the Middle East continue rising.
Therefore, this retreat will likely lead to higher margins and help it achieve its targets. The management is targeting an annual operating profit of between £4 billion and £4.2 billion this year. Its annual free cash flow is expected to be between £3.6 billion and £3.8 billion.
In addition to these, the company is benefiting from the AI boom, with demand for its power engines continuing to soar. Its backlog jumped to over £7.3 billion, with most of this being power equipment for data centers. It is also benefiting from the ongoing growth of its small modular reactor (SMR) business.
Rolls-Royce share price technical analysis
RR stock price chart | Source: TradingView
The daily chart shows that the RR stock price bottomed at 1,096p, its lowest level in March, April, and May. It has formed a triple-bottom pattern whose neckline is at 1,325, its highest point in April. This pattern is one of the most popular bullish reversal signs in technical analysis.
The stock is hovering at a crucial support of 1,407p, its highest point on February 26. It has remained above the 50-day and 100-day moving averages. Therefore, there is a likelihood that the stock will resume the uptrend and reach the psychological point of 1,500p.
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