Rolls Royce share price is up – should it go further?

Rolls Royce has seen its share price rise steadily in recent times – Photo: Shutterstock

The value of the Rolls Royce (RR) share price has been rising over the past few sessions. The question is – which tailwinds provide momentum and do they have resistance?

The aviation industry certainly seems to be recovering as Airbus (AIRfr) signs new fleet contracts. This should play into Rolls Royce hands, alongside RR alternative energy projects – nuclear: SMR, hydrogen air engines – which also seem to be welcomed with enthusiasm.

Rolls-Royce (RR) share price chart

For companies like Rolls Royce (RR), The British government’s promises on nuclear projects are encouraging, as is the call from the International Energy Agency (IEA) for the expansion of nuclear power.

The government hopes to get a new reactor approved every year until 2030 with the aim of making it operational by 2050. However, there is no guarantee that the current policy will remain under a different administration.

Net zero target

Danni Hewson, financial analyst at AJ Bell, acknowledges the current political uncertainty.

It appears we are at an existential crossroads with Conservative leadership candidates seemingly more concerned with the cost of transitioning to net zero than the cost of not meeting the goal.

“For Rolls Royce (RR) he has already started his journey by recognizing the potential for change for the company that prides itself on being at the forefront of energy technologies.

It points out that the lion’s share of its revenue still comes from its civil aviation and defense divisions and that concerns about Russian aggression have already boosted the latter’s prospects.

But adds that electricity, which already accounts for a quarter of the business, is growing and its annual report boasts an order book of £2.8bn ($3.3bn).

“Companies have witnessed the volatility of carbon markets first hand and they will explore all avenues to reduce electricity costs in the short and long term and whatever the rhetoric of the moment, whoever will ultimately find their name on No 10’s desk its clear long-term safety and sustainability must come from smart green technology”.

Hewson concludes that Rolls Royce’s focus on small nuclear reactors appears to be a game-changer for both consumers and large businesses, especially those with massive power-consuming data centers.

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“This is where the momentum will make the difference and with headlines linking the company to the end of the energy crisis, it’s clear the momentum is on its side.”

From a pricing perspective, does the stock now look like a bargain? You could definitely tell that from pre-pandemic levels of around 237p and historically nowhere near the highs of 442p from early 2014.

Airbus share price (AIRfr)

The Rolls Royce (RR) the share price is currently hovering around the 90p level, it has risen steadily over the past week from just over 85p and the stock has fallen as low as 40p in October 2020.

Marketbeat Analyst Consensus Rating for Rolls Royce (RR) is a “hold” with a consensus price target of 108p.

Meanwhile, Simply Wall St paints a similar scenario, it rates Rolls Royce (RR) below fair value of 14.6% – with fair value seen as 108p.

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Karen J. Nelson