Shares of FTSE 100-listed Rolls Royce (GB:RR) have experienced a strong run, as the engineering and aerospace giant impressed investors with its solid operating performance and cost savings efforts. RR stock rallied over 200% in 2023 and jumped more than 90% in 2024. Analysts remain bullish on the stock’s long-term prospects. However, the average price target reflects limited upside potential in comparison to the spike seen over the past two years.
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More on Rolls Royce’s Performance
The rally in Rolls Royce shares reflects the company’s successful turnaround initiatives under the leadership of CEO Tufan Erginbilgic. The company’s underlying operating profit more than doubled to £1.6 billion in 2023 from £652 million in 2022.
Rolls Royce continued its growth streak in 2024. In August, the company raised its full-year profit and cash flow guidance and reinstated its dividend after the slump caused by the COVID-19 pandemic led to dividend suspension. It is worth noting Rolls Royce’s underlying operating profit in the first half of 2024 jumped to £1.15 billion from £673 million in the comparable period of the previous year.
Despite supply chain challenges in the aerospace industry, which are expected to cost Rolls Royce £150 million to £200 million in 2024, the company reaffirmed its full-year guidance of underlying operating profit in the range of £2.1 billion to £2.3 billion. Management’s confidence reflects the demand for engines and their maintenance due to robust travel demand. Moreover, the company is witnessing solid demand in its Defence business, supported by geopolitical tensions.
Analysts Remain Bullish on RR Stock
In December, three analysts reaffirmed their Buy ratings on Rolls Royce stock. In fact, Deutsche Bank analyst Christophe Menard reiterated a Buy rating on RR stock and increased the price target from 555p to 630p to reflect free cash flow and earnings expectations and updated sector assumptions.
The analyst thinks an upgrade by the company to its 2027 targets when it announces its 2024 results in February 2025 could act as a catalyst for the stock. While the analyst believes that the 17x EV (enterprise value)/EBIT (forward) multiple indicates further upside, the company must continue to advance its transformation programme to bring in line its valuation with rivals like General Electric (GE).
Is Rolls Royce Stock a Buy, Sell, or Hold?
Overall, Rolls Royce stock scores a Strong Buy consensus rating based on five Buys versus one Hold recommendation. The average RR stock price target of 661.01p implies 15.5% upside potential, which indicates limited upside compared to the surge seen in 2023 and 2024.
