As 2015 gets underway, one of the big investment stories of the coming year is likely to be the revival of Europe. The previous year was characterized by recessionary lapses, political turmoil and investor misgivings. But now the European Central Bank (ECB) and various federal governments are embracing stimulus and backing away from growth-choking austerity.
These trends make European-based multinationals a good bet in 2015 for investors seeking new areas of equity growth in an overbought stock market. One company with excellent prospects now is British blue chip Rolls-Royce Holding PLC (ADR) (RYCEY), the world’s second-largest maker of aircraft engines behind rival General Electric Company (GE).
Economic as well as regulatory trends should give a substantial lift to Rolls-Royce stock this year.
A global operator, Rolls-Royce is based in London and should get a particular boost in its home turf of Europe, as major developed markets such as Germany, France, Italy and Spain get off the ropes and start swinging again. A developer and marketer of both military and civilian engines, this respected company with the well-known brand name spun off its eponymous luxury car making unit in 1973.
Rolls-Royce recently snagged a $5 billion order from Abu Dhabi’s Etihad Airways for its advanced Trent XWB engines to power 50 Airbus A350 aircraft. The order includes long-term maintenance of the engines, which for an engine maker is akin to a multi-year annuity.
Rolls-Royce also recently won a $300 million order from Qatar Airways for Trent 700 engines, with maintenance support, to power five Airbus A330 freighter aircraft.
The Trent 700 is the most popular Rolls-Royce engine model, currently powering more than 530 A330 aircraft with about 60 operators. Around the world, airlines have so far purchased more than 1,400 Trent 700 engines.
RYCEY Tailwinds
Aside from the resurgence of the global aviation industry, another tailwind for Rolls-Royce stock is the company’s leadership in the development and production of cleaner and quieter engines. Climate change is an increasingly potent political issue and regulators in developed and developing countries are implementing increasingly strict regulations to reduce the aviation sector’s carbon footprint.
Not only will Rolls-Royce benefit from European and overall global recovery, but its “green” environmentally friendly engines will be in greater demand as governments clamp down on emissions to combat global warming. When it comes to pollutants that cause climate change, aviation is a prime culprit.
Rolls-Royce’s Trent series is among the cleanest, most fuel efficient engines on the market and the company continues to refine its capabilities, making RYCEY the go-to engine maker when airlines want to clean up their act.
With a market cap of $16.1 billion, Rolls-Royce has the resources to sustain robust research and development into advanced engine technologies for a variety of industries, including the energy sector for which it makes gas and diesel engines, gas compression equipment, fuel cells, and automation and control systems.
Auspicious Trends for Rolls-Royce Stock
Rolls-Royce stock is positioned for an auspicious 2015, but first it must shake off preceding woes that mostly stemmed from Europe’s malaise and declining defense demand. For the first half of the company’s fiscal 2014, earnings came in at nearly $1.1 billion, a year-over-year decline of 20%. First half revenue came in at $11.6 billion, a year-over-year drop of 7%.
However, in a promising development for the coming months, the company announced this year the imminent sale of its energy business, which represents good timing considering the precipitous drop in energy prices. What’s more, both Europe and defense orders should pick up in 2015 as governments loosen the reins on spending and the commercial aviation sector continues its long-term boom.
With an entrenched reputation for offering premium, high-quality aerospace products and strong demand in the cards, this bluest of the British blue chips should give investors a smooth ride in 2015.
As of this writing, John Persinos did not hold a position in any of the aforementioned securities.
