FTSE 100
Rolls Royce share price is among the best-performing in the FTSE 100. Up by more than 3.50%, the share price is below that of IAG, Evraz, Polymetal, and Frenillo, the silver mining giant. The shares are trading at 253p, which is significantly above this weeks low of 212p.
Rolls Royce stock price has gained for the second consecutive day as investors react to a new deal made by the company and Virgin Galactic. In an announced yesterday, the two companies will team up to build a new supersonic aircraft that will connect London and New York in about 90 minutes. The new Mach 3 plane will have a speed that is more than double than that of a typical jet.
The announcement came a few months after Virgin Galactic announced that it would be partnering with NASA to build a high-speed, high altitude point-to-point travel for commercial airline passengers.
Investors believe that Rolls Royce share price will do well if it gets a major role in the new era of supersonic flights. Still, there are several challenges for all of this.
First, the announcement came at a time when Rolls Royce is going through its biggest financial crisis on record. The halting of international flights means that the company cannot as much engines as it did before the crisis. Also, the company cannot continue to service the thousands of planes it used to service before.
Second, developing the plane will be an expensive affair, which is a difficult thing for Rolls Royce. Just last week, Moody’s downgraded its credit rating to junk citing the weakness of the commercial aviation industry. The rate cut came a few weeks after Fitch downgraded the company to junk and giving it a negative outlook. Therefore, it will be a difficult thing for the firm to commit millions of pounds to this development.
Third, while speed has always been important, there is the question about whether the model will work. For example, decades ago, Concorde stopped operating because of the high cost of operating the plane. Today, while airlines can fly faster, most of them prefer to use a lower speed to save on fuel.
Virgin Galactic is a publicly traded company with a market cap of more than $4 billion. Richard Brunson is among its biggest shareholders.
Analysts are mostly bullish about Rolls Royce share price. In recent notes, analysts at Goldman Sachs, Jefferies, Citigroup, and Panmure Gordon have released relatively bullish notes about the stock. Goldman, Jefferies, and Citi expect that the stock will climb to above 500p. That is a substantial premium to the current level of 256p.
The weekly chart below shows that Rolls Royce share price has dropped hard after peaking at 1,103p in 2019. The decline gained momentum in February and March. Since then, the shares seems to be forming a bearish flag pattern. The price remains below the 50-day and 100-day exponential moving averages. Therefore, I suspect that the downward trend will continue as bears target moves below 200p.
On the flip side, a move above 426p will mean that there are more bulls in the market, thus invalidating the downward prediction.