Rolls-Royce (LSE: RR) shares have faced a tough past couple of years. Even prior to the Covid-19 pandemic, the firm was struggling with cash flow issues. And with this worsened by the global health crisis, the stock dropped to around 30p in October 2020. Since the turn of 2020, Rolls-Royce is down over 55%.
However, investors have seen a resurgence as a rally over the last week has pushed Rolls-Royce shares back above 100p – with the stock even breaking the 110p barrier momentarily – amid takeover rumours. So, will this momentum continue? And is Rolls-Royce a buy for me? Let’s take a look.
Potential takeover
Last week saw the price of Rolls-Royce shares spike as stories circulated via the Betaville website that the FTSE 100 jet engine maker could soon be involved in a “significant corporate transaction”. Sparking speculation of an acquisition, investors rushed to buy shares in the firm. The share price jumped 19% last Friday.
However, since then, sentiment surrounding the takeover has wobbled. And the stock’s price has drifted downwards, currently floating just above the 100p mark. The main reason for this is due to the British government. With a golden share in Rolls-Royce, it has the ability to veto any potential deals. It seems unlikely that it would allow the sale of the firm to a foreign bidder. But as a long-term investor, this would never be enough alone for me to deem Rolls-Royce a buy.
Wider outlook
Instead, I look at wider factors that may affect Rolls-Royce shares’ performance in the future.
One of these is the full-year results released last month. Within these, there were many positives to take away. A standout was the firm’s statutory profit, which stood at £124m. The year before, the same metric was a £3.1bn loss, showing the massive strides Rolls-Royce has taken to recover post-pandemic. For me, these are encouraging signs.
On top of this, the business has also undergone a large restructuring. A total of around 9,000 jobs have been axed. And, while this is bad news for the ex-employees, decisions such as these have produced a £1.3bn saving in annual expenses for the firm.
Increased air travel will also benefit it. As Rolls-Royce generates a large part of its revenues from servicing commercial jet engines, the return of passengers to the air will hopefully provide a boost this year.
However, one concern is the fact CEO Warren East is stepping down at the end of 2022. He has been at Rolls-Royce for eight years, meaning his departure may spell uncertainty in the future.
Would I buy?
So, with these factors in mind, do I think Rolls Royce shares are a buy? Despite the slim chance of a takeover, I think in the long term that the current share price holds plenty of opportunities. The restructuring efforts the firm has taken should set it up to hopefully prosper in the future. And the fact that it’s once again profitable may be an inclination of this. Increasing air travel in 2022 as more Covid restrictions disappear will also help the business going forward. As such, at the current price of 102p, I would be willing to add Rolls-Royce shares to my portfolio.
