Rolls-Royce share price has spectacularly performed this year, making it the best-performing company in the blue-chip FTSE 100 index. It has risen by about 95% this year, helped by the strong demand of its products and services. This growth has brought its market cap to over $61 billion.
Rolls Royce business is thriving
Rolls-Royce stock price has done well this year, helped by the ongoing demand for its civil aviation, power, and defense. It has also done well because of the management’s strategy to cut costs and boost efficiency this year.
The civil aviation industry is still seeing strong demand, as evidenced by the strong performance of top airline stocks in Europe and the United States. United Airlines stock has soared by over 140%, while IAG has become one of the best-performing FTSE 100 companies.
Rolls-Royce business does well when civil aviation is growing because of its business model. In addition to selling engines, the company also gets into long-term service contracts with airlines, which are paid per mile flown. This model helps to ensure that airlines don’t have to pay a lumpsum amount when the servicing comes due.
It also helps to provide regular revenue to Rolls-Royce, which often sells its engines at very low margins. Sometimes, the company sells some of its engines for a loss and makes money over time in servicing contracts.
RR benefits from the aviation industry because it is one of the biggest manufacturers of these engines. It largely competes with General Electric Aviation and CFM International, a joint venture between GE and Safran. Its specialty is in the wide-body engines.
Rolls-Royce share price has also soared this year because of the ongoing demand for defense equipment. Its defense business manufactures products used in flying, in marine, and in space. This industry has grown as geopolitical tensions have grown.
Additionally, Rolls-Royce has been a key beneficiary of the ongoing demand for power as the artificial intelligence business booms. That happened because of its power solutions that data center companies have embraced. It is also a top producer of the popular small modular nuclear reactors.
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RR is showing results
At the same time, the management has worked to lower the company’s costs by layoffs and shedding some of its unprofitable or non-core business. For example, it sold the Naval Propulsors & Handling and its Direct Air Capture business.
The remaining company is more efficient, has higher margins, and the management hopes it will become more profitable.
However, the main challenge is that its business is still seeing strong supply chain issues, especially in its defense business. Also, Boeing and Airbus, the two biggest aircraft manufacturers in the world, are facing substantial challenges.
Rolls-Royce’s business will do well this year as the management expects that its operating profit will be between £2.1 billion and £2.3 billion. Its free cash flow will also be between £2.1 billion and £2.2 billion. So, what next for the Rolls-Royce share price in 2025?
Rolls-Royce share price forecast
RR stock chart | Source: TradingView
The weekly chart shows that the RR stock price has been in a strong uptrend in the past few months. It has formed a rising wedge chart pattern, a popular bearish sign in the market.
At the same time, the Relative Strength Index (RSI) and the MACD indicators have formed a bearish divergence pattern. This pattern happens when these indicators are falling as the stock prices rise.
Therefore, the combination of a wedge and a bearish divergence will means that the stock will either drop in 2025 or have weaker returns than this year. If this happens, the next point to watch will be at 500p.
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