August 30, 2019. Zhukovsky, Russia. Aircraft engine Rolls-Royce Trent XWB long-range wide-body twin-engine passenger aircraft Airbus A350-900 XWB Airbus Industrie at the International Aviation and Space Salon MAKS 2019.
The Rolls-Royce share price has jumped in the past four consecutive days as outlook for the company improved. The RR stock rose to 121p, which was substantially above this month’s low of 100p. Other aviation-related stocks like IAG and Ryanair have also rebounded.
There are three main catalysts for the performance of the Rolls-Royce share price. First, investors are cheering the recent nuclear deal among the US, UK, and Australia. The deal will see the US and UK share technology with Australia in a bid to build nuclear submarines.
Before the AUKUS deal, Australia had signed a deal with France. Therefore, investors believe that Rolls Royce, as a leading engine manufacturer, it will benefit from the deal. Other companies that could benefit are BAE Systems, General Electric, and other American defense contractors.
The stock is also rising because of positive signs about the aviation industry. In a statement this week, the United States announced that it will start allowing foreign travellers provided that they were immunized. Travellers will also need to demonstrate that they don’t have Covid.
Analysts believe that vaccination and testing will help the aviation industry to recover. As it does, Rolls-Royce will benefit because it makes most of its money from long service contracts.
Third, there is a general feeling that Rolls-Royce is a relatively undervalued company. In my past Rolls Royce share price forecast, I wrote that the stock was about 35% undervalued. Therefore, there is a likelihood that more investors will buy the shares as they bet on the recovery of the aviation industry.
The daily chart shows that the Rolls-Royce stock price has been supercharged lately. It has moved above the important resistance level at 114p, which was the highest level in May and June. This is a bullish signal. Also, the stock has moved above the 25-day and 50-day moving averages and formed a bullish inverted head and shoulders pattern.
Therefore, for now, the outlook of the stock is bullish, with the next key level to watch is at 128p, which was the highest point on March 18.