Rolls-Royce share price hits new high on nuclear reactor contract news

Rolls-Royce share price performance

Rolls-Royce shares saw a significant boost on 19 September, 2024, with the price jumping 5.75 % to 525.00 pence (p). This surge marked a new 52-week high for the company's stock, continuing its impressive run over the past two years. In fact, Rolls-Royce shares have skyrocketed by approximately 650 % in just 23 months.

The recent price spike can be attributed to several factors, with the most significant being the announcement of a potential deal for the company's Small Modular Reactor (SMR) technology. This news has sparked renewed interest in Rolls-Royce among investors and analysts alike.

It's worth noting that the company's share price performance comes amidst a broader strategy shift. Rolls-Royce has recently announced the sale of its naval propulsion business, aligning with its focus on key defence sectors such as combat and submarines.

For investors considering how to invest in Rolls-Royce shares, it's crucial to understand the factors driving this remarkable price movement and the potential long-term implications for the company.

The impact of the SMR deal

The likely primary catalyst for Rolls-Royce's share price surge was the selection of its SMR unit as the preferred supplier for mini-nuclear reactors by the Czech Republic's state utility ČEZ Group. This development represents a significant milestone for Rolls-Royce's nuclear energy ambitions.

Small Modular Reactors are compact nuclear power stations designed to generate 470 MW of low-carbon energy. Each SMR has the capacity to power approximately one million homes for over 60 years. One of the key advantages of SMRs is their factory-built nature, occupying only about one-tenth of the space required by conventional nuclear power sites.

The global SMR market is poised for substantial growth in the coming decades. Industry projections suggest the market could reach $72.4 billion by 2033 and an impressive $295 billion by 2043, with a compound annual growth rate (CAGR) of 30 %.

However, it's important for investors to note that the first Czech nuclear reactor is not expected to be operational until at least the mid-2030s. Additionally, each SMR is estimated to cost between $1 billion and $3 billion, representing a significant investment.

Rolls-Royce stock rating and broker sentiment

The Smart Score, powered by TipRanks, rates the stock at 10 out of 10, indicating "Outperform" status. This score is derived from 8 unique data sets and suggests strong potential for the stock to exceed market expectations. The high rating on this quantitative measure paints a positive picture of the stock's prospects.

Complementing this, the Analyst Consensus shows a strong "Buy" recommendation based on the opinions of 11 analysts over the past three months. Of these, 9 recommend buying, 1 suggests holding, and 1 advises selling. This overwhelming majority of "Buy" ratings aligns with the high Smart Score, reinforcing a bullish outlook on the stock.

Valuation considerations for Rolls-Royce shares

Despite the recent surge in share price, investors should approach Rolls-Royce's valuation with caution. The stock's forward price-to-earnings (P/E) ratio for 2024 stands at 29, which is considered relatively high. This valuation suggests that much of the company's future growth potential may already be priced into the stock.

When evaluating Rolls-Royce as a potential investment, it's essential to consider multiple factors beyond the SMR opportunity. These include the long-term growth prospects in global travel, increased defence spending, and the company's ability to execute its strategic plans effectively.

Investors should also be mindful of the risks associated with the nuclear energy sector, including regulatory challenges, public perception, and the significant capital requirements for developing and deploying SMR technology.

Conducting thorough research and considering a diverse range of factors will help investors make informed decisions about Rolls-Royce shares and their potential place in a balanced investment portfolio.

Rolls-Royce share price: technical analysis

Rolls-Royce presents a compelling narrative of resilience and recovery. From 2015 to early 2020, the stock maintained relatively stable prices but then experienced a dramatic decline due to the Covid-19 pandemic's severe impact on the aviation industry. However, the most striking feature of this chart is the remarkable turnaround that followed.

Since late 2020, Rolls-Royce's stock has embarked on an impressive upward trajectory, with prices surging to new highs by 2025. This steep ascent, particularly pronounced from 2023 onwards, suggests a significant improvement in investor confidence and the company's business performance.

Technical indicators provide additional context to this bullish trend. The stock is currently trading well above its 50-day, 100-day, and 200-day moving averages, confirming the strength of the uptrend.

Rolls-Royce price chart

Future outlook for Rolls-Royce

The recent share price surge and SMR contract news paint a positive picture for Rolls-Royce's future. However, it's important to remember that the company's success will depend on various factors beyond its nuclear energy ambitions.

Rolls-Royce's core aerospace and defence businesses remain crucial to its overall performance. The recovery of the global aviation industry post-pandemic and potential increases in defence spending could provide additional tailwinds for the company.

Moreover, Rolls-Royce's efforts to streamline its operations and focus on key growth areas could lead to improved profitability in the coming years. The sale of its naval propulsion business is just one example of the company's strategic realignment.

As Rolls-Royce continues to evolve and pursue new opportunities, investors should stay informed about the company's progress and any significant developments in its target markets.

How to invest in Rolls-Royce shares

If you're considering investing in Rolls-Royce shares, here are the steps to get started:

1. Do your research on Rolls-Royce, including its financial performance, growth prospects, and potential risks
2. Open a share dealing account with a reputable broker like IG
3. Search for Rolls-Royce shares (ticker: RR.L) in our trading platform or app
4. Decide how many shares you want to buy or how much money you'd like to invest
5. Place your trade and monitor your investment.

Remember to consider your investment goals, risk tolerance, and overall portfolio strategy before investing in any individual stock. It's also wise to diversify your investments across different sectors and asset classes to manage risk effectively.

By staying informed about Rolls-Royce's performance and the broader market conditions, you can make more informed decisions about your investments and potentially capitalise on the company's future growth prospects.