Rolls-Royce shares: bull vs bear

Bullish: James Reynolds

Rolls Royce (LSE: RR) has had some very bad years recently, but its outlook going forwards is promising: if the company’s management can navigate some difficult financial waters, then I believe its share price will recover.

The biggest positives for Rolls-Royce are the numerous defence contracts it has signed with the U.S government. These contracts are to refit the U.S air force with new engines for their bombers. Rolls-Royce engineers will also be contracted to repair and supply spare parts for these new engines.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story. In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

This alone is enough to make me bullish. The U.S has a vested interest in remaining the world’s preeminent hyperpower and has always been willing to spend as much as it takes to achieve this goal. It is a well-known fact that the U.S spends more on defence than the next 10 nations combined: it wants the best for its military and will spare no expense.

The contract may only be for £2.6bn for now, but if Rolls Royce impresses the U.S military, then it can expect to profit for decades to come.

This is why, despite an admittedly poor debt to asset ratio, some analysts are predicting a 9% rise in revenue each year going forwards.

While this growth isn’t incredible by industry standards, it has been enough for Rolls-Royce to turn a profit once again this year.

I believe that Rolls-Royce is undervalued and I’ll be adding it to my portfolio.

James Reynolds does not hold any shares mentioned.

Bearish: Royston Wild

The Rolls-Royce share price has risen an impressive 80% or so over the past 12 months. It’s perhaps no surprise that the plane engine manufacturer has soared as travel restrictions have been steadily unwound. However, it’s my belief that Rolls-Royce shares could now be looking overly expensive. 

At current prices around 135p, Rolls-Royce trades on a price-to-earnings (P/E) ratio of 25 times for 2022. It’s a hefty valuation in my opinion given that the FTSE 100 firm isn’t out of the woods just yet. A setback in its turnaround plan, and/or fresh trouble for the aviation industry, could send its share price plummeting from recent levels. 

The biggest threat to Rolls-Royce remains the ongoing Covid-19 crisis. In the near term this threatens to hammer servicing revenues, and further out could it have a disastrous impact on demand for its engines. Rising infection rates in parts of the world mean that some countries are tightening travel rules again, causing fresh worries for the aviation sector. 

The prospect of a long and lumpy road out of the pandemic is particularly worrying given the huge amount of debt Rolls-Royce is nursing. It had £4.9bn worth of net debt on its books as of June. Not only could have a significant impact on the engineer’s growth strategy, such as an increased focus on green technology. It could also compromise Rolls-Royce’s very survival.  

Cost-cutting and asset sales at the firm have generally gone well to date. But that huge debt pile might spook investors if Rolls-Royce’s streamlining plan starts to run out of steam. All things considered, I believe the engineer remains far too risky. 

Royston Wild has no position in any of the shares mentioned.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

This post was originally published on Motley Fool

Financial News

Daily News on Investing, Personal Finance, Markets, and more!