Rolls-Royce (LSE:RR) has been one of the standout companies in the FTSE 100 over the past year. Let’s not forget, Rolls-Royce shares are up a whopping 189% over this period. Yet at 303p, some top analysts don’t think the party’s over for the growth stock. In fact, there are several calling for it to hit 400p or more. So is there still opportunity for me to get involved?
Top analyst thoughts
Let’s run through some of the price targets and statistics of the analysts from top banks. The highest price target is currently 431p from US bank Citi. Here in the UK, Barclays has a target of 409p, which it increased just this week. Well-respected bank JP Morgan has a forecast of 400p. All of these targets are for the next year.
In fact, I can’t seem to find any major analyst who’s forecasting a share price drop for the company in the next 12 months. This tells me the kind of positive sentiment that’s surrounding the firm right now.
Of course, even the top research analysts get things wrong. Their forecasts (much like my own opinions) should always be taken with a pinch of salt. They don’t mean that the stock is guaranteed to shoot up to 400p.
Reasons to support a rally
The analysts at Barclays commented that one reason for the optimistic share price forecast is better cash flow. They expect the net cash position to improve over this year, which in turn should help it to get back an investment grade credit rating.
In turn, this will make it easier and cheaper for the company to manage its debt pile going forward. When I also factor in some potential interest rate cuts in the UK this year, it should further ease pressure on borrowing costs for Rolls-Royce.
Another factor I’m focused on is the potential rise in demand for the Defence division. With escalating conflicts around the world, Governments have been increasing their spend in this area. Rolls-Royce should see higher revenue from that part of the group this year. It further helps to diversify revenue away from the previously dominant Civil Aerospace arm.
Points to watch for
Even with the lofty share price forecasts, I do need to be careful. Any stock that has jumped almost 200% in a year is ripe for a potential short-term drop. What I mean by this is some investors might decide to bank their profit by selling the stock. This could cause the share price to drop. As it starts to fall, more investors could decide to do the same.
On that basis, I’m going to wait for a few weeks to see if the share price dips a little. If it does, I’ll be ready to invest, ultimately to try and target 400p.
