Rolls-Royce Shares Have Risen 122.7% This Year. What’s Next?

The Rolls-Royce Holdings PLC (LON: RR) share price has performed exceptionally well this year, up 122.7% after the recent pullback. However, the question remains: will the rally continue, or what comes next for the company? 

The short answer is that the plane engine manufacturer’s fundamentals remain promising as it works on its revised strategy under new CEO Tufan Erginbilgic. Tufan took over in January and has been instrumental in turning around the company by focusing it on its core business and shutting down the non-profitable ventures. 

The result of the turnaround plan is that the company was able to raise its profit outlook for the current financial year from £0.8bn – £1bn to £1.2bn – £1.4bn, marking a significant increase in potential profitability figures and leading to a significant rally higher in the company’s share price. 

Rolls Royce more than doubled its underlying operating profits for the first half of this year after saying that it expects the profits to come in at £673 million, which was more than double analysts' expectations of a £328 million profit. 

The aeroplane engine maker has benefitted from the rebound witnessed in international travel, given that it makes engines for large planes such as the Boing 787 and the Airbus A380. The company makes most of its money from maintaining the plane engines it sells. 

The company will likely continue outperforming if the demand for long-haul international flights remains high. Therefore, we could see the rally in Rolls Royce shares continue if the company continues beating analysts’ and its own expectations in Q3 and its full-year results. 

Some of the changes implemented at Rolls Royce by its new CEO include cutting “onerous” contracts worth up to £1.6 billion. The company expects to generate about £1 billion in free cash flow during the current financial year, driven by early benefits from its transformation program. 

Rolls-Royce has identified seven key improvement areas, including increasing the efficiency of its operations, reducing its working capital and cutting non-essential programs. 

I expect RR shares to continue outperforming and rallying higher, but the uptrend will not be without pullbacks. 

Rolls Royce (RR.) share price. 

The Rolls Royce share price has risen 122.67% this year, driven by upbeat investor sentiment.