The last couple of years have been a bit of a roller coaster ride for the Rolls-Royce (LSE:RR.) share price. Despite the business approaching the edge of bankruptcy following the pandemic, it’s made a miraculous turnaround to the point where it’s now one of the best-performing stocks in the FTSE 100.
In fact, shares are up by 55% since the start of 2024 and more than 200% in the last 12 months!
Needless to say, that’s a terrific display. And investors who held on during the tough times are understandably patting themselves on the back. But after such impressive growth, the question now becomes can this momentum continue pulling the Rolls-Royce share price even higher?
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What’s next for Rolls-Royce?
The company will be releasing its half-year results for 2024 in August. But in the meantime, management’s provided investors with some insight into operations through a trading update. And there’s a lot to like.
For starters, large engine flying hours are now back to pre-pandemic levels, with outlooks suggesting it could rise further by another 10%. That’s terrific news since the longer planes are in the air, the higher the demand for the company’s maintenance services.
What’s even more encouraging is that IndiGo, an upcoming airline in India, has placed an order for 60 Trent XWB engines. While we don’t know the exact details of this deal, the estimated historical price per engine is around $25m (£19.5m). That means investors can roughly expect an extra £1.17bn of revenue to emerge as this order’s fulfilled.
Meanwhile, the Australian government’s placed an order for some of Rolls-Royce’s reactors to power its military submarines. And in its Power Systems division, the company’s in late-stage discussions with Deutz regarding the planned sale of its lower-power-range engines business, which is expected to close by the third quarter of this year. Once the sale’s complete, it’ll once again give management another cash windfall to shore up the balance sheet.
Tempering expectations
As part of the firm’s restructuring management’s targeting to deliver between £400m and £500m in annualised savings. Based on the group’s current progress, an estimated £200m of this target is expected to be achieved by the end of 2025.
That’s obviously a good sign since it frees up more cash flow for reinvestment and debt reduction. However, this strategy has involved thousands of job cuts to date. And it seems more employees will be pushed out the door this year.
While unfortunate for the workers, it also creates short-term headwinds for Rolls-Royce. Apart from potential operational disruption if executed poorly, it also means the business will be paying out a lot of severance, putting increased pressure on the bottom line.
With that in mind, it’s possible the Rolls-Royce share price may experience a pullback depending on the intensity of this headwind. But in the long run, this could be a terrific stock to hold and definitely merits a closer inspection.
For now, I’m staying on the sidelines until more insight’s available from its upcoming results.
