Having fallen by over 25% in the last four months, the near-term prospects for the Rolls-Royce Holding PLC (LON:RR) (RR.L) share price appear to be relatively downbeat in my view. The outlook for the world economy seems to be challenging, and this could hold back its performance to some degree in my opinion.
Still, I believe that the stock has a sound strategy that could provide it with improving operational performance in future. Its focus on cutting costs through a headcount reduction may bring some uncertainty and instability in the near term. but in the long run I feel that it could create a stronger business that is more flexible and able to adapt to changing operational challenges.
Furthermore, Rolls-Royce has growth potential within the defence industry in my view. The US continues to increase its defence budget under Donald Trump, and this could act as a tailwind for a range of operators within the industry. With NATO members also expected to increase their defence budgets to meet an agreement for them to be 2% of GDP, I believe that the outlook for the defence sector could become increasingly positive after what has been an uncertain number of years.
The rise in the number of aircraft that is expected in the civil aerospace industry over the long run could create growth opportunities for Rolls-Royce in my opinion. The company may also benefit from its planned shift to provide engines to narrow-bodied aircraft alongside wide-bodied aircraft, with it having the potential to significantly increase its total addressable market.
Therefore, after a tough period I believe the Rolls-Royce share price could offer an improving long-term outlook. While potentially volatile, I’m optimistic about the strategy it is pursuing in order to boost its operational performance, while it may enjoy improving trading conditions in future years which help to boost its financial prospects.