As we enter the final months of the year, it’s worth reflecting on the tremendous growth in Rolls-Royce (LSE:RR.) shares in 2023. The iconic British company was one of the pandemic’s biggest losers. But, it has delivered a sustained stock market turnaround this year.
Spurred by a recovery in the company’s Civil Aerospace division and ongoing strength in Defence, the Rolls-Royce share price has increased 122% since January — and 223% over 12 months. This stellar performance begs the question: will Rolls-Royce be the best-performing FTSE 100 stock in 2023?
Let’s see how the stock compares against other high-performing shares in the UK’s leading index.
The top FTSE 100 performers
The top five best-performing FTSE 100 shares this year to date (YTD) include companies spanning a variety of sectors. Rolls-Royce leads the pack. It’s followed by retailer Marks and Spencer, which was recently re-admitted to the index after a four-year hiatus in the FTSE 250.
To complete the quintet, energy giant Centrica, specialist manufacturing investor Melrose Industries, and private equity firm 3i Group have all delivered stellar returns for shareholders too.
| FTSE 100 stock | YTD Performance |
|---|---|
| Rolls-Royce | +122% |
| Marks and Spencer | +87% |
| Centrica | +69% |
| Melrose Industries | +65% |
| 3i | +55% |
| FTSE 100 index | +1% |
With three months left of trading in 2023, Rolls-Royce has built a commanding lead over other FTSE 100 shares in terms of its performance since January.
Granted, that can change quickly in the volatile world of stock market investing. Nonetheless, it’s fair to say, the business is a strong contender in the race to become this year’s top Footsie stock.
It’s also worth mentioning that Marks and Spencer plans on re-introducing its dividend in November. As such, M&S will join the other three companies in rewarding investors with passive income. Rolls-Royce is the only stock in the bunch that won’t pay a dividend this year.
Where next for Rolls-Royce shares?
Taking a look at Rolls-Royce’s half-year results, there are plenty of causes for optimism. Underlying operating profit skyrocketed from £125m to £673m. Plus, group revenue advanced from £5.3bn to £7bn, propelled by increases across all divisions.
The outlook for the company’s largest unit — Civil Aerospace — has improved considerably from the gloomy days of the pandemic. Engine flying hours have recovered to 83% of 2019 levels as pent-up demand for international travel supports the airline industry.
Nonetheless, this number still hasn’t made a full rebound to its pre-Covid levels. Long-term shareholders can attest to this. The Rolls-Royce share price is down 33% on a five-year basis despite this year’s remarkable rally.
Reducing net debt and achieving an investment-grade rating have been identified as key goals by the board. Progress on these metrics has been solid so far. Prospective investors should monitor further developments closely to ensure the momentum continues.
Overall, it’s worth bearing in mind that few engine manufactures can rival Rolls-Royce’s market position and unique expertise — either in civil or military settings. These high barriers to entry give the company some key advantages.
I own Rolls-Royce shares and I’ll continue to hold them. I believe there’s a good chance the company could be the top-performing FTSE 100 stock this year. However, potential investors should factor in notable downside risks at today’s share price.
