Dear Rolls-Royce stock fans, mark the calendar for 28 November

Our writer explains why the last Wednesday of November could hold the key for the direction in which Rolls-Royce stock heads next.

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Rolls-Royce (LSE: RR) stock has been one of the great success stories of the London Stock Exchange in 2023. While the overall market has been lacklustre, shares of the storied engineer have soared 134% higher year to date.

They have eased up a bit in recent weeks, though, adding ‘just’ another 7.75% over the last month. However, there is an event in a few weeks that could possibly send them higher (or lower), depending on what is revealed on that date.

Strategy review

The event in question is the FTSE 100 firm’s Capital Markets Day on 28 November. These events are when a company’s management provide institutional investors and financial analysts with an update on financial and strategic matters.

In the case of Rolls-Royce, chief executive Tufan Erginbilgic said this will be when the group will “share the outcome of our strategy review along with medium-term goals”.

What could that entail?

Well, this should be interesting because he has already stated that the short-term goals of his transformation plan are largely complete. This has included operational improvements, cost reduction measures, the disposal of non-core assets, and initiating better prices on unprofitable contracts.

The turnaround has already started to bear fruit, with a huge jump in first-half underlying profit and free cash flow. Margins improved in both its Civil Aerospace and Defence divisions. And Erginbilgic has said that price increases at its Power systems division would improve margins in the second half of the year.

So, maybe there will also be news about its smaller New Markets division. This is the unit that includes small modular reactors and electrical aviation. But this is a tricky one to cut investment in, as these could be the company’s new growth engines for decades to come.

More positive news

Additionally, we know that Rolls is looking at opportunities to once again sell engines for single-aisle planes, so I’d expect some additional commentary around that. Of course, re-entering that market will need large injections of capital and take many years to get going.

I’ll be interested to hear what management says around reducing the £2.8bn net debt while investing for future growth. To my mind, this sizeable debt pile remains the biggest long-term risk now that disposals appear to be complete.

Encouragingly though, Bank of America analysts recently estimated that Rolls-Royce has managed to recover 88% of its pre-Covid engine flying hours. They think China’s reopening could see that number reach 92% of pre-pandemic levels for the full year. That would be above management’s 80%-90% guidance.

This would presumably support higher free cash flow estimates for the second half of the year. And maybe this will be a positive thing to be confirmed at the end of November.

What now?

Of course, there’s always the possibility that the event largely underwhelms. There could be no nuggets of gold or upgraded earnings.

On the other hand, the share price could come under pressure if management signals that future progress will be steady and gradual from here on in. Or that things are likely to get much tougher in the years ahead.

Whatever happens, it could have a large influence on the share price, at least in the near term. I’ll be keen to hear what management says at this event before deciding whether to add to my holding.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Ben McPoland has positions in Rolls-Royce Plc. 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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