Rolls-Royce Share Price is Strongly Undervalued – DCF

The Rolls-Royce share price started the year well. The RR stock rose to 127p, which was about 18% above the lowest level in December. Other aviation-focused stocks like EasyJet, IAG, and Wizz Air also started the year well.

The strong performance of the RR share price is mostly because analysts expect that the company will do well this year as travel resumes. While the Omicron risks remain, data on how dangerous the illness is have been supportive. Also, most governments have been reluctant to add more travel and lockdown restrictions.

Analysts have been relatively muted about Rolls-Royce recently. The most recent analysts call for the stock was from JP Morgan, who downgraded the stock to about 140p. That price is still above the current level.

Deutsche Bank analysts expect that the shares will decline to about 116p while those from Berenberg expect that it will rise to 160p. 

Meanwhile, a discounted cash flow calculation by Simply Wall St estimates that the stock is undervalued by about 50%. The analysis expects that the stock could rise to about £4.39, which will be higher than the current £1.27.

Rolls-Royce share price forecast

The four-hour chart shows that the RR share price has been in a strong bullish trend in the past few days. Along the way, the stock has managed to move above the 25-day and 50-day moving averages. A closer look also shows that it has formed an inverted head and shoulders pattern, which is usually a bullish sign. It is also a few points below the key resistance level at 132.32p. 

However, the stock has formed both an island reversal pattern and a diamond pattern that is shown in yellow. Therefore, there is a likelihood that the stock will retreat slightly this week as some investors take profit. If this happens, it will likely retest the support at around 125p.