Rolls-Royce Plc (LON:RR) shares plunged 5.86% on Monday amid growing concerns about the Delta variant of the Covid-19 pandemic. Infection levels of the Delta variant are rising again in the UK and across the world, and this could force governments to announce restrictions that limit business activity.
There are also concerns that as more cases of the Delta variant are reported, the air travel and leisure industries will continue to tweak travel restrictions again affecting the market. Rolls-Royce’s jet engine business could be affected.
This explains why the company’s share price plummeted alongside air travel company shares on Monday. Ryanair Holdings Plc (LON:RYA) fell 6.21% while International Consolidated Airlines Group SA (LON:IAG) the parent of British Airways plunged 5.23%.
Rolls-Royce shares are now down nearly 20% over the past month, creating an attractive entry opportunity.
What catalysts to look forward to for a rebound?
Rolls-Royce’s massive share price decline has come just over two weeks before its next earnings report. The company reports its half-year results on 5th August, which could be another opportunity for the price to bounce back.
The UK government re-opened the economy during the second quarter of the calendar year, which means proceeds from that quarter will be part of the half-year report.
Rolls-Royce announced a restructuring program to address the challenges presented by Covid-19 last year and the market will be looking forward to the latest update during the earnings announcement.
In March, Rolls-Royce reported a loss of almost £4 billion for the fiscal year 2020 compared to a profit of £583 million in 2019. The half-year results will shed light on how the company is recovering back to profitability.
The company also said it was expecting service costs related to Trent 1000 (one of the two engines used by Boeing 787) technical issues to fall to approximately £2.1-£2.2 billion down from £2.4 billion amid progress in remedial work.
Investors will be watching to see whether the company managed to meet expectations. This could be another catalyst for a rebound in Rolls-Royce’s share price.
So, should you invest in Rolls-Royce ahead of earnings?
Although Rolls-Royce’s recent share price decline appears to create an attractive entry opportunity, there is still a lot of uncertainty surrounding its near-term performance. The company may not return to profitability until next year.
Governments across the world continue to open up their economies after last year’s lockdowns. The downside to this decision is it could result in higher cases of the delta variant, potentially pushing countries back to lockdowns.
As such, Rolls-Royce may not be out of the woods yet. It would be best to wait for the half-year results on 5th August to see the progress it has made over the last six months.
In summary, Rolls-Royce will certainly report better results than last year, however, investors should also pay more attention to management comments on this year’s outlook and the progress made after launching the restructuring program.
It is also possible that any upside related to an improved bottom line may already be priced into the Rolls-Royce share price.
Not Investment Advice
Note: Views expressed are those of the writer. The author does not own any stocks mentioned. The article is information, not advice. Share prices can rise and fall. Past returns are not a guide to the future. Please do your own research.