The Rolls-Royce share price continued its strong rally this year and is now hovering at its all-time high. This surge has made it one of the best-performing companies in the FTSE 100 Index this year. Here are the top reasons why the stock is soaring.
Rolls-Royce share price is soaring as demand rises
The main reason why the Rolls Royce stock price has jumped is that it has robust demand across all its three divisions: civil aviation, power, and defence.
The civil aviation industry is booming, with most companies in the sector seeing substantial growth. This is notable because the company makes most of its money by supplying widebody engines and then leveraging the Power by the Hour model.
In this, companies don’t just buy its engines, but they also enter long-term service contracts that are based on flight hours. The benefit of this model it provides it with regular recurring revenues.
The risk, however, is that the company experienced a substantial weakness during the pandemic as airlines stopped flying. At the time, the company laid off workers, sold assets, and then raised capital to stay afloat.
The company, like Germany’s Rheinmetall, has benefited from the ongoing performance in the defense sector as countries across Europe and the United States boost their spending. This is notable because the defense segment accounts for almost 30% of its revenue as it is a major supplier of jet engines and submarine propulsion systems.
Most importantly, the company has benefited from the ongoing power demand in Europe and other countries because of the AI tailwinds. In particular, its power engines have become popular in data centers.
SMR business potential
Rolls-Royce share price has also jumped because of its New Energy and Small Modular Reactor business. This is a business that is developing SMRs to provide power to countries and plants.
The SMR division recently received a large order from the UK government, and its demand will continue rising. While this division is still small, some analysts believe that it is worth much more today.
Analysts cite Rolls-Royce expertise in the nuclear energy industry to predict that this segment is big deal. One way is to compare this business with its rivals in the United States. For example, Oklo, which is backed by Sam Altman, has a market cap of $18 billion, while NuScale Power is valued at over $11 billion.
Strong financial performance
Rolls-Royce stock price has also done well because of its strong performance. The most recent results showed that the company’s revenue rose by 13% in the year’s first half to £9.05 billion.
The gross margins jumped, while the operating profit rose to £1.73 billion. Looking at the numbers by segment showed that the civil aviation segment’s revenue rose by 17% to £4.78 billion, while the defence and power systems made £2.2 billion and £2 billion.
Rolls-Royce, which the CEO called a burning platform in 2023, has now become a top performer. Most notably, the company crossed the mid-term targets ahead of schedule.
Rolls-Royce stock price technical analysis
The daily timeframe chart shows that the Rolls-Royce stock price peaked at 1,196p in September and then wavered. It has remained above the 50-day and 100-day Exponential Moving Averages, which is a good thing.
The risk is that the stock has formed a rising wedge pattern, pointing to more downside. Also, the Relative Strength Index (RSI) and the MACD indicators have formed bearish divergence patterns.
Therefore, there is a risk that the stock price may drop in the coming days, potentially to the psychological point at 1,000p.
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