Will Rolls-Royce shares continue their form in 2024?

2023 has been fruitful for Rolls-Royce shares. However, this Fool is wondering if this fine momentum will continue in the future.

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With just a over a month left in 2023, I’ve already got one eye firmly on potential winners for next year. Of course, Rolls-Royce (LSE: RR) shares have to be in the discussion.

If I’d bought shares in the FTSE 100 constituent five years ago, it’s safe to say I would have seen huge volatility. Back then, the stock spent a considerable amount of time above the 300p mark. However, the Covid-19 outbreak and its aftermath shaved over 60% off its share price. From its 2020 lows, it made incredible gains. In the last 12 months, its jumped a whopping 180%.

So, after a strong period, can this continue next year and beyond?

The plus points

Many analysts certainly think so. Bank of America, Barclays, and Morgan Stanley all predict strong gains for the stock. The latter recently revised its price target from 166p to 275p. At its current price, that signifies a 12% increase. Barclays also upgraded its view from ‘equal weight’ to ‘overweight’, hiking its target price to 270p. While of course these forecasts aren’t guaranteed, this bullish outlook will no doubt provide investors with a confidence lift.

On top of that, CEO Tufan Erginbilgic, who joined the firm at the beginning of this year, is also on a mission to cut costs as the business continues to make strides in implementing its long-term strategy. Rolls-Royce cut 9,000 jobs back in 2020 as the pandemic took its toll. And with its latest move, it plans to axe a further 2,000-2,500. When he took over, Erginbilgic described the company as a “burning platform”. With these moves, he aims to reduce duplication seen across the business areas.

When looking for positives, there’s also the strong recovery that airlines have posted. A host of companies within the sector, including the likes of Ryanair, have released positive updates in recent times. For Rolls-Royce, which generates 46% of its revenue from its civil aviation segment, this is a big boost.

And the negatives

That said, I’m wary of a few issues. To start, despite a strong recovery, there’s ongoing uncertainty in the aviation sector. Conflicts in Ukraine and the Middle East have restricted travel. And any further spread of this could see more flights cancelled.

On top of that, a recurring theme for Rolls-Royce has been supply chain issues. Back in August, Erginbilgic stated that supply chains won’t stabilise “any time soon“.

The firm also has £2.8bn in debt. Although a concern, it’s not a massive pile. However, with a large amount of it due by 2025, this inflates the issue.

Gains in 2024?

So, with all of the above considered, where might the Rolls-Royce share price head in 2024?

A host of investment banks seem to think upwards. And there’s certainly potential. I like the moves Erginbilgic is making to create a more efficient business.

However, as they say, all good things must come to an end. And after what’s been an incredible 2023, my concern is that the share price has topped out for now. Some uncertainty surrounding the aviation sector is also a worry.

I’ll be keeping the stock on my watchlist as we edge closer to 2024. But I won’t be making a move before then.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Bank of America is an advertising partner of The Ascent, a Motley Fool company. Charlie Keough has positions in Barclays Plc. The Motley Fool UK has recommended Barclays Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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