Where will the Rolls-Royce share price go in 2022?

The Rolls-Royce share price is not having a great start to 2022, but will the business end the year on a high? Zaven Boyrazian explores.

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Rolls-Royce's business aviation engine, the Pearl 700

Image source: Rolls-Royce plc

The Rolls-Royce (LSE:RR) share price has had a bit of a rocky start to 2022. In fact, since the year began, the stock has fallen by nearly 12%. But it’s worth noting that over the last 12 months, the investor return is still over 10%.

Despite what the recent trajectory would suggest, analyst forecasts remain bullish. So, what’s behind this optimistic view for the Rolls-Royce share price in 2022? And should I be considering this business for my portfolio? Let’s take a closer look.

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Encouraging progress begets investor confidence

Rolls-Royce has multiple divisions, but it’s best known for its operations within the aerospace industry. Unsurprisingly, the company’s revenue stream was decimated during the height of the pandemic. With flights being constantly cancelled and borders closed, the need for new aircraft engines or maintenance of existing ones seemingly disappeared overnight.

This is the primary reason why the Rolls-Royce share price plummeted in 2020. However, recently the outlook for this company has significantly improved. The pandemic is still, but international travel is starting to ramp up again. That’s obviously good news for the group’s revenue stream.

Meanwhile, management is currently executing a drastic restructuring of the entire business. While thousands of employees have sadly lost their jobs, the company has so far achieved over £1bn in annualised savings. At the same time, non-core parts of operations are being disposed of to shore up the balance sheet. To date, around £2bn has been raised. Just this month, the company completed the sale of its Bergen Engines business, adding another €91m (£76m) to the books.

Combining the healthier balance sheet with a recovering top line is an encouraging sight. And providing that the travel sector continues its steady recovery, I think it’s reasonable to say that the Rolls-Royce share price can continue to climb in 2022.

Risks to the Rolls-Royce share price

As promising as the recent performance may be, the group’s recovery prospects seem to be largely dependent on external factors. While the Omicron variant appears to be less severe, it’s significantly more transmissible than Delta. If infection rates get too high, borders may once again close. But even if that doesn’t happen, the recovery speed of the travel sector will likely slow, as individuals avoid travelling out of fear of getting infected.

Needless to say, this wouldn’t bode well for the share price. And while the recent disposals have provided greater flexibility and liquidity, a prolonged delay of the return to a pre-pandemic environment could be disastrous for this business.

The bottom line

All things considered, my views on Rolls-Royce and its share price have become more optimistic in recent months. However, there are still too many unknowns for my liking. Therefore, as an investor, I’m not going to be adding any shares to my portfolio today.

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Zaven Boyrazian 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.

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