Singapore - February 4, 2018: The Rolls-Royce Trent XWB engine of an Airbus A350-1000 XWB in Airbus factory livery during Singapore Airshow at Changi Exhibition Centre in Singapore.
UK stocks have had a strong start of the year even as concerns of a recession remains. The FTSE 100 index has risen to the highest point in years, outperforming its key peers. Rolls-Royce (LON: RR.) share price has helped lead this rally as it jumped to the highest point since March 2022. It has soared by more than 57% from the lowest level in 2022. So, what next for Rolls-Royce Holdings?
Rolls-Royce Holdings is a major industrial conglomerate that operates in hundreds of countries. The firm manufactures some of the best-known wide-body aircraft engines that are used by leading airlines. It is also a major military contractor, where it builds aircraft and marine engines. Rolls-Royce is also a leading company in the power sector.
Therefore, the Rolls-Royce stock price has done well as investors expect major tailwinds for the company. Expectations are that the company’s civil aviation will do well this year as flight hours increase. China, a leading player in the global aviation sector, has reopened its skies for foreign travelers. This will in turn lead to more flights in and out the country.
Further, the flight disruptions that happened in 2022 will likely ease this year since airlines are making significant improvements. Analysts believe that the fall of inflation will also lead to more demand for flying, which will benefit the company.
For starters, Rolls-Royce Holdings does not make much money selling its aircraft engines. Some of them are actually sold at a loss. Instead, the company’s bread and butter is its long contracts with airlines that use its engines. It is given a contract to maintain them and is paid for every flight hour. As such, many airlines pay the company thousands of dollars every month.
Another tailwind for 2023 is the company’s defence business, which is expected to do well in 2023. Countries, especially the US and in Europe, are boosting their defence spending. This will benefit the company because it is a key player in the industry. Therefore, I believe that the firm faces more tailwinds than headwinds in 2023.
The daily chart shows that the RR stock price has been in a strong bullish trend in the past few months. As it rose, the shares moved above the 38.2% Fibonacci Retracement level and the 25-day and 50-day moving averages. It moved above the important resistance level at 94.85p, the highest level on December 12. The MACD has moved above the neutral point while the RSI has continued rising.
Therefore, the stock will likely continue rising as buyers target the next key level to watch will be at 120p. A drop below the support at 94.85p will invalidate the bullish view.
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