Rolls-Royce (LON: RR) has been one of my top investment calls in 2023. Earlier this month, I wrote that investing in the company was akin to betting on a remarkable comeback. In my Rolls-Royce share price forecast for 2023, which you can read here, I wrote that the stock had a room for growth. My bullish outlook for the stock was right, as the stock soared by 18% on Thursday.
Rolls-Royce Holdings is one of the many FTSE 100 companies that are reporting their earnings this week. Others were firms like Rio Tinto, IAG, and Lloyds Bank. In a report, the company said that its underlying profit jumped by 57% to 652 million pounds while its free cash flow jumped to 505 million pounds, better than what analysts were expecting.
In addition to better results than expected, the Rolls-Royce share price jumped sharply because of the upcoming strategic review. In this restructuring, the firm aims to reduce its working capital (current assets minus current liabilities) and boost its efficiencies.
As I wrote in my previous reports, the company has various things that can create significant market value. For example, it can abandon the aspiration projects that were being invested in by Warren East like electric planes and small nuclear plants.
Most importantly, the company could move back to narrow-plane engine building. This is the industry where it has the most potential. As I wrote on Wednesday, Boeing and Airbus recently received giant orders from Air India and United. Sadly, Rolls-Royce will not benefit immensely from these orders.
Further, the company could also separate its business into two. It could separate its civil aviation business from defence and power. The reality is that the smaller defense division tends to subsidize the aviation business.
The weekly chart shows that the RR share price made a strong comeback this week after it published its strong results. It managed to rise above the 23.6% Fibonacci Retracement level of 115p. The 50-week and 25-week moving averages have made a bullish crossover while momentum oscillators are soaring.
Therefore, the outlook of the stock is still bullish, with the next key level to watch being at 152.84p, which is about 20% above the current level. This price is important because it was the highest point on November 1, 2021. A jump above that level will see the shares jump to the 50% retracement level at 206p, which is 63% above the current level.
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