The Rolls-Royce share price has been in a strong recovery even after the firm recorded a huge loss in 2020. The RR stock is trading at 122p, which is 45% above the year-to-date low of 86p.
What happened: Last week, Rolls-Royce Holdings revealed that it had made a 4.5 billion pound annual loss in 2020 as the coronavirus pandemic affected its revenues and increased its costs. To deal with the crisis, the company is laying off staff and closing some plants. The company also boosted its balance sheet with 7.3 billion worth of cash derived from new equity and debt.
Still, analysts and investors believe that the company’s worst is behind it. As more countries continue their vaccinations, there is a possibility that civil aviation will return to growth. Furthermore, people who have avoided vacations in the past year will likely start taking them. The firm expects that the total flying hours will rise to 80% of 2019 levels. In 2020, this figure was about 43%. This could have a positive impact on the Rolls-Royce share price.
Flying hours are important for RR because the company makes most of its profits from the long-term contracts it has with airlines.
Turning to the daily chart, we see that the company’s share price declined to 86p earlier this year as the new variant of the pandemic was spreading. Since then, it has risen by more than 40%, becoming one of the top performers in the FTSE 100. Along the way, the stock has formed what seems like a cup and handle pattern. The top part of this pattern is at 134.9, which is 10% above the current level.
Therefore, in my view, as I have written before, the price will likely keep rising as bulls target the resistance at 134.9. A move above that level will bring the next target to 150p, which is 23% above the current level.
