Rolls-Royce (LON: RR) share price has recovered modestly as investors reacted to the ongoing recovery of the aviation sector. The stock has also risen as investors anticipate more demand for military equipment and nuclear power solutions. The RR share price is trading at 93p, which is slightly above this year’s low of 78.14p.
Aviation sector recovery
Rolls-Royce Group is a leading industrial company that makes most of its money in the civial aviation industry. The company manufactures some of the most popular wide-body aircraft engines in the industry. It supplies engines to planes like Airbus A350 and has a 35% market share in Boeing 787.
In some cases, Rolls-Royce sells its engines at a loss. It then makes most of its income from the mandatory servicing that airlines are required to do. This is why aircraft flying hours is so important for Rolls-Royce and other firms in the industry.
The aviation industry has made a spectacular recovery this year even though the rising inflation is a major concern. At the same time, many airlines are now placing large orders. This week alone, Boeing has received hundreds of orders of its popular 737-Max plane from companies like Qatar Airways and Air India.
In a statement two weeks ago, the firm said that it was seeing demand for wide-body jets rise at a faster pace than expected.
Rolls-Royce is also a leading player in the power sector. Its expertise in nuclear power generation has seen it receive authorisation to build several small nuclear reactors in the UK. With more countries transitioning from carbon power sources, there is a likelihood that the company will benefit.
Rolls-Royce is also benefiting from the rising demand for military equipment following Russia’s invasion of Ukraine. More countries, especially those in Europe, are now increasing their defense spending.
However, the biggest risk for Rolls-Royce is that costs are rising, which means that the company will struggle to get to profitability this year.
Rolls-Royce share price forecast
The daily chart shows that the Rolls-Royce share price formed a strong double-bottom pattern at about 78.15p this year. In price action analysis, this pattern is usually a bullish sign. It has also moved above the 25-day and 50-day moving averages while the Relative Strength Index (RSI) is approaching the overbought level.
Therefore, the shares will likely have a bullish breakout as buyers target the key resistance at 100.25p. A drop below the support at 86.80p will invalidate the bullish view.
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