Rolls-Royce’s share price has held steady over the past few weeks, moving up from a year-to-date low of 1,159p to the current 1,264p. Still, it remains well below its year-to-date high of 1,586p. Despite the weakness, Morningstar analysts believe the stock will rebound by about 20% to 1,520p.
Morningstar analysts expect Rolls-Royce stock to rebound
In a recent post, Ollie Smith, a Morningstar analyst, said that he believes that the company’s fair value is at 1,520p. If the stock moves to this level, it will be a 20% jump from where it is today.
The analyst believes that the company will continue to see strong demand for its products in the coming years. Most notably, he sees the company benefiting from the ongoing rearmament by European governments and the supercycle in the civil aviation industry. He added:
“Investors will have to wait for Rolls-Royce’s next trading update on Nov. 12 to find out if there is a material change to that picture, and whether the company thinks 2027 will give 2025’s incredible defense stock gains a run for their money.”
Next week’s earnings to provide color on its business
Rolls-Royce stock dropped after its top competitors published its financial results. GE Aerospace and Safran released earnings, which showed that their businesses were doing well, but facing challenges.
Safran’s main issue was that the aftermarket business was struggling as airlines reduced their flights amid the rising jet fuel prices. GE Aerospace, on the other hand, released results that beat analysts’ estimates. However, the company’s forward guidance for the fourth quarter was moderately lower than expected. It also noted that costs remained a major challenge. On the positive side, these stocks have started to pare back their losses in the past few days.
Looking forward, the next important catalyst for Rolls-Royce shares will be the upcoming earnings report, which will provide more information about its financial results.
The most recent earnings report showed that its underlying profit rose by 46% in the first half of the year to £2.5 billion. Most notably, despite the challenges in the aviation industry, the company raised its full-year estimate.
The company’s free cash flow rose to £2 billion, helped by the higher underlying profit. Rolls-Royce expects that its full-year underlying profit will be between £4.7 billion and £4.9 billion.
Rolls-Royce share price technical analysis
RR stock chart | Source: TradingView
The daily chart shows that the RR stock price crashed to 1,159p late October as GE and Safran published their results. It then bounced back to the current 1,275p as investors bought the dip in industrial names.
The rebound happened because its lowest level coincided with the ascending trendline that links the lowest levels since November last year.
The challenge, however, is that the stock remains capped below the 200-day moving average and is forming a bearish flag pattern. Therefore, the stock will likely remain on edge in the near term and possibly rebound if the US-Iran war ends.
READ MORE: Rolls-Royce stock is falling fast this month: Is a rebound possible?
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