The Rolls-Royce (LSE: RR) share price has had a wonderful 12 months. In fact, its incredible market outperformance ranks it at #2 of the FTSE 100 index’s biggest gainers over the past year. What’s more, the stock has had an outstanding fortnight, surging strongly on positive news. But what next for Rolls-Royce and its long-suffering shareholders?
The Rolls-Royce share price roller coaster
The Rolls-Royce share price had a weak 2019, declining to close the year at 234.45p. Alas, as Covid-19 infections went global, the stock went into free fall. At points during 2020’s coronavirus crisis, RR appeared to face existential threats as air passenger miles collapsed. Thus, the shares crashed spectacularly, hitting a 2020 intra-day low of 34.59p on 2 October 2020. Who in 2019 would ever have imagined the stock collapsing below 35p? The good news is that this marked the lifetime low for RR shares. They have rebounded powerfully over 12 months.
For Rolls-Royce shareholders, really good news arrived on ‘Vaccine Monday’ (7 November 2020). Effective vaccines against Covid-19 offered a road to recovery for the airline industry and its suppliers. By the end of 2020, the Rolls-Royce share price had leapt to close at 111.25p. That’s more than triple (+221.6%) its 2020 low. What a relief for the group and its owners.
The stock skyrockets since late July
Then again, the Rolls-Royce share price didn’t have a strong start to 2021. By 19 July, the stock had dropped to close at just 87p, down more than a fifth (-21.8%) since the start of the year. Then the stock had a strong end to the summer as it surged over two months. On Wednesday, 15 September, it closed at 101.5p, but has subsequently shot up over the past two weeks. On Wednesday, RR closed at 145.08p, up more than two-fifths (+42.9%) in a mere fortnight. And the stock also hit its 2021 intra-day high of 148.45p on Monday, 27 September.
Is RR finally on the road to recovery?
The Rolls-Royce share price’s momentum has been helped by the announcement of two big deals. First, RR sold its ITP Aero division (a Spanish aircraft-engine manufacturer) for €1.7bn (£1.5bn) to a private-equity consortium led by Bain Capital. These proceeds will help the engine maker strengthen and repair its battered balance sheet. Second, RR announced a big business win. The group secured a 30-year contract to supply F130 engines for the US Air Force’s B-52 Stratofortress bombers, worth up to $2.6bn (almost £2bn).
All this is great news for shareholders, but Rolls-Royce’s road to recovery could be long and winding. The company has already warned that it will miss its 2022 target of delivering £750m in free cash flow. And analysts are bearish (negative) on the stock, with a consensus Rolls-Royce share price target of 119p. I don’t own Rolls-Royce shares at present and would decline to buy the stock at its current 145.08p price. For me, the shares have maybe run too far, too fast, and therefore may be due a setback.
Of course, I could be wrong. More wins in the war against Covid-19 could provide a welcome boost to the world economy. And as vaccination programmes advance, air travel will become an option once more. But for the Rolls-Royce share price to really thrive, air passenger miles need to get back to near 2019’s highs. Then both airlines and RR shares could fly high again!
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Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.