The Rolls-Royce share price is around 110p. Should I buy shares now?

I reckon the worst is probably behind Rolls-Royce (LSE:RR) now. The company has plenty of liquidity in my view and it’s forecasting that it will turn cash flow positive some time in the second half of this year. Even if civil aviation remains weak, the odds are pretty high that […]

I reckon the worst is probably behind Rolls-Royce (LSE:RR) now. The company has plenty of liquidity in my view and it’s forecasting that it will turn cash flow positive some time in the second half of this year. Even if civil aviation remains weak, the odds are pretty high that air travel will eventually recover given the vaccine rollouts in my view. With the Rolls-Royce share price now around 110p per share, should I buy? Here’s what I think.

Vaccines & variants

As I have written before, I reckon a short-term factor that affects the Rolls-Royce share price a lot is the battle between Covid-19 vaccines and variants. On that front, there is some new news.

In terms of vaccines, the US recently approved Johnson & Johnson’s one shot vaccine, which should increase supply by a fair amount over the next few quarters. Although it isn’t as effective as Pfizer or Moderna’s vaccines, the Johnson & Johnson vaccine only takes one shot and thus could offer potentially better compliance. Even better, the US government has also brokered a deal where Merck has agreed to help make Johnson & Johnson’s vaccine. Once Merck progresses enough in production, supply should increase even further. As a result of better than expected production and government efforts, vaccine supply may not be a big issue in the US by June, a date that’s faster than many had previously expected.

On the variant news, there is one new concern. Apparently one variant in Brazil can reinfect people. Meanwhile other variants continue to spread. Given the variant developments, I think it makes the rolling out of Covid-19 vaccinations even more urgent.

In the battle between vaccines and variants, I’d say that the vaccines are currently ‘winning’ given that the number of new cases are falling in many places. If the number of cases continue to drop meaningfully, I think expectations for a rebound in air travel could rebound and that could continue to help the Rolls-Royce share price.

The Rolls-Royce share price: what I’d do

Although I don’t know what’s going to happen, I personally think that the vaccines will win out, and as a result, I’d buy Rolls-Royce given the current share price. Although the variants will spread, I reckon companies could potentially come up with vaccine candidates that will eventually target those strains more effectively. Technology is rapidly improving, especially now that scientists have arguably solved the protein folding problem.

With that said, the timeline of the recovery in air travel is highly uncertain even if the vaccines are currently winning. Rolls-Royce management themselves previously thought that 2021 widebody engine flying hours could rebound to 70% of 2019 levels. Due to current conditions, they revised their estimate down to 55% of 2019 levels in late January. A weaker air travel market could make things difficult for Rolls-Royce financially.

I also don’t know what’s going to happen in the upcoming earnings report. The results could be good or they could disappoint. If they disappoint, the Rolls-Royce share price might not do as well.

A Top Share with Enormous Growth Potential

Savvy investors like you won’t want to miss out on this timely opportunity…

Here’s your chance to discover exactly what has got our Motley Fool UK analyst all fired up about this ‘pure-play’ online business (yes, despite the pandemic!).

Not only does this company enjoy a dominant market-leading position…

But its capital-light, highly scalable business model has previously helped it deliver consistently high sales, astounding near-70% margins, and rising shareholder returns … in fact, in 2019 it returned a whopping £150m+ to shareholders in dividends and buybacks!

And here’s the really exciting part…

While COVID-19 may have thrown the company a curveball, management have acted swiftly to ensure this business is as well placed as it can be to ride out the current period of uncertainty… in fact, our analyst believes it should come roaring back to life, just as soon as normal economic activity resumes.

That’s why we think now could be the perfect time for you to start building your own stake in this exceptional business – especially given the shares look to be trading on a fairly undemanding valuation for the year to March 2021.

Click here to claim your copy of this special report now — and we’ll tell you the name of this Top Growth Share… free of charge!

More reading

Jay Yao has no position in any of the shares mentioned. The Motley Fool UK has recommended Johnson & Johnson and Moderna Inc. 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.

The post The Rolls-Royce share price is around 110p. Should I buy shares now? appeared first on The Motley Fool UK.

ASNF

Next Post

New Research Offers 5 Easy Ways to Increase Online Fundraising

Fri Mar 5 , 2021
By: Brady Josephson, Managing Director at the NextAfter Institute In order to better understand the current state of online fundraising across the globe and learn how donors interact with nonprofits online, we became mystery donors and email subscribers to 630 organizations in nine countries. We analyzed our experiences along the […]