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Rolls-Royce Stock Pullback Doesn’t Shake Strong Aviation and Reactor Orders
Rolls-Royce (RR) shares have entered a corrective phase, pulling back from their year-to-date high of 1,194p in September to the current 1,038p, marking a drop of over 13% from this year’s peak. While the decline may worry some investors, analysts say it reflects natural profit-taking after a massive rally rather than any fundamental weakness in the company’s business.
Technical Analysis: Why Rolls-Royce Stock Is Pulling Back
The Rolls-Royce share price has mirrored declines in other industry heavyweights. For instance, GE Aerospace has shed approximately 10% from its year-to-date high, while French counterpart Safran has dropped from €315 to €290.
The recent pullback is largely attributed to investors booking profits after the stock surged 1,643% from its 2022 low to this year’s peak, a dramatic rally that naturally invites selling pressure.
From a technical analysis perspective, Rolls-Royce’s decline follows classic bearish indicators:
- The daily chart shows a double-top pattern at 1,180p with a neckline at 1,086p, a widely recognized bearish reversal formation.
- A bearish divergence has formed, with key oscillators like the Relative Strength Index (RSI) and the MACD creating lower lows even as the stock was previously trending upward.
- The RSI has dropped from an overbought 78 in June to a near-oversold 30, while the MACD has crossed below the zero line, signaling continuing downward momentum.
Analysts suggest the stock is likely to target a key support level at 1,000p. Depending on market dynamics, Rolls-Royce may bounce at this level or continue its downward trend as investors rotate funds to other equities. The bearish outlook would only be invalidated if the stock rises above the 1,086p neckline.
Rolls-Royce’s Business Remains Strong
Despite the share price correction, Rolls-Royce’s core business performance remains robust. The company is benefiting from the booming aviation sector and the ongoing shortage of widebody engines, driving strong order growth.
- Recent engine orders have come from IndiGo and Malaysia Airlines, along with Emirates and Etihad, secured at the Dubai Airshow.
- The company’s small modular reactor business is seeing strong demand, with the UK government already selecting Rolls-Royce and projects advancing to the final stage in Sweden. Regulatory processes have also begun in the United States. If successful, this segment could rival American companies like Oklo ($13B valuation) and NuScale ($5.5B valuation).
- Rolls-Royce’s power business is thriving, fueled by the surging demand from data centers, and the company is developing its next-generation engine, set for service in 2028.
The company’s management remains confident about meeting its forward guidance, targeting an underlying operating profit of £3.1–3.2 billion and free cash flow of £3–3.1 billion.
Valuation Remains Reasonable Despite 2023 Rally
Even after its significant 2023 surge, Rolls-Royce shares are not considered overvalued by many analysts. The stock currently trades at a trailing PE ratio of 15, which is in line with other industrial peers, suggesting that the market still sees potential for long-term growth.
The recent correction may offer investors an opportunity to re-evaluate positions without overpaying, as the company continues to execute across multiple business lines.
Outlook: Key Levels and Investor Considerations
From a technical standpoint, the key levels to watch are:
- Support: 1,000p — if broken, could signal further downside.
- Resistance: 1,086p (neckline of double-top) — a sustained move above this would invalidate the bearish scenario.
Overall, Rolls-Royce’s stock pullback appears to be a healthy consolidation following a historic rally rather than an indication of weakening fundamentals. Investors will likely monitor order flows, technical patterns, and broader aviation market trends to gauge the next directional move.
