The Rolls-Royce (RR) share price has been in a steep sell-off in the past two days as investors remain worried about the spreading Delta variant. The stock declined by more than 2% on Monday and settled at 109p, which is still 25% above the lowest level in July.
Rolls Royce made headlines last week for two main reasons. First, the company announced that it was selling two of its businesses as it continues to boost its balance sheet. It sold its Bergen plant to Langley in a 1.4 billion pound deal. It also sold ITP Aero in a deal valued at more than 1 billion pounds.
In the same week, the company announced strong half year results as it moved to profitability. The company made more than 300 million pounds in profits as the aviation industry recovered and the cost cutting program held steady. The firm also predicted that it will be cash flow positive later this year.
Now, the Rolls Royce share price has pared back some of last week’s gains as Covid concerns remain. The main concern is that China is now battling with the new wave of the pandemic. As a result, the country has banned large scale gatherings and exhibitions.
Further, there are concerns about Sinovac, the vaccine that it has been delivering to most of the population. This vaccine is so inefficient that health officials are considering mixing it with other Western vaccines. At the same time, many companies like Wells Fargo and Amazon have pushed back on their reopening plans.
These evenrts have an impact on Rolls-Royce Holdings because it makes money through the long-term contracts it has with airlines. As a result, the more hours they fly, the more the money the company makes.
Meanwhile, analysts are getting excited about the RR stock price. In a note on Monday, analysts at Deutsche Bank said that it boosted its target from 113p to 116p. In a note, the analysts said:
“Rolls-Royce management presented lofty long-term goals, with civil Aerospace aspirational EBIT margin seen mid-teens thanks to better gearing post the restructuring and its annualised £1.3bn by end of 2022.”
Other analysts from banks like UBS and Berenberg have been bullish on the Rolls-Royce share price.
The four-hour chart shows that the RR share price has recently retreated. Still, a closer look shows that this is not a normal retreat since it happened after it tested the key resistance at 113.26. This was the highest level in June. Along the way, the shares seems like they have formed a cup and handle pattern. In price action, this pattern is usually bullish.
Therefore, as we wrote in the monthly forecast, there is a possibility that the Rolls-Royce share price will resume the bullish trend as investors target the key resistance at 120p. This view will be invalidated when the stock drops to 100p.