FTSE 100-listed Rolls-Royce Holdings PLC (GB:RR) has earned a bullish review from analyst David Perry at J.P. Morgan, who predicts more upside for the stock. Yesterday, Perry raised his price target for RR stock from 475p to 535p while confirming a Buy rating. The new target predicts nearly 15% growth in the share price. RR shares gained 3% on Tuesday. Year-to-date, the stock has gained 53%.
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The price upgrade was primarily driven by RR’s strong first-half 2024 results, released last week.
Rolls-Royce specializes in designing engines and power systems for the aerospace and defence industries globally.
J.P. Morgan’s Bullish Case
J.P. Morgan is bullish on Rolls-Royce’s upbeat sales and price hikes. Consequently, the company raised its EPS (earnings per share) estimates to 18.6p and 20.2p for 2024 and 2025, respectively. The bank also raised its FCF (free cash flow) estimates by £261 million, £171 million, £143 million, and £34 million for the period between 2024 and 2027.
Last week, Rolls-Royce raised its free cash flow (FCF) guidance to the range of £2.1 billion to £2.2 billion in 2024 from the previous projection of £1.7 billion to £1.9 billion. Perry praised the company’s efforts to improve cash conversion and drive efficiency across all divisions. He expects the company to be debt-free by the end of 2024.
The analyst further highlighted that the improved FCF is expected to be driven by profits rather than increased customer advances on long-term service agreements (LTSA). As a result, it views this as a “high-quality” FCF upgrade.
Recap of Rolls-Royce’s HI Results
Rolls-Royce’s revenues increased by 18% year-over-year in the first half to £8.2 billion, while the underlying operating profit surged 74% to £1.15 billion. Thanks to its solid results, the company resumed its dividends following the last payment in 2020. RR said it will start with a payout ratio of 30% of the underlying after-tax profit.
In terms of outlook, RR increased its full-year guidance for underlying operating profit to the range of £2.1 billion to £2.3 billion, up from the previous forecast of £1.7 billion to £2.0 billion.
Is Rolls-Royce Stock a Good Buy?
According to TipRanks, RR stock has received a Strong Buy rating based on all Buy recommendations from nine analysts. The Rolls-Royce share price forecast is 544.98p, which is 17.12% higher than the current trading level.
