Could Rolls-Royce shares hit £5 in 2024?

Edward Sheldon looks at what’s driving Rolls-Royce shares higher, and discusses what it would take for them to hit £5 this year.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Rolls-Royce (LSE: RR.) shares just can’t stop rising at the moment. Over the last six months, they’ve climbed from around 200p to 330p.

Could they hit 500p in 2024? Let’s discuss.

Why the shares are flying

The main factor driving the Rolls-Royce share price higher right now, in my view, is bullish broker activity.

Since the company advised in November that it’s aiming to deliver £2.8bn in medium-term operating profit, a number of brokerage firms have upgraded their earnings forecasts and/or price targets.

For example, in early December, analysts at JP Morgan raised their target price to 400p from 235p, while also lifting their rating on the stock to ‘overweight’ from ‘neutral’.

We now believe a much higher percentage of Rolls-Royce’s long-term service agreements will convert into profit“, they said at the time.

Around the same time, Goldman Sachs reinstated coverage of the stock with a ‘buy’ rating and a 370p price target, saying the company is still in the early innings of an inflection in earnings and cash flow.

Investors are questioning whether expectations are too high. We do not think so”, wrote its analysts.

Meanwhile, a week or so later, Citi upgraded its earnings forecasts and raised its target price to 431p from 294p, saying that Rolls-Royce’s targets are credible.

This kind of broker activity tends to have a positive impact on a company’s share price as it gives investors confidence to buy shares.

Is £5 possible?

As for whether the shares can hit £5 in 2024, I think a lot is likely to depend on the forward-looking earnings guidance we receive from the company in its full-year results tomorrow (22 February) and its interim results in August, and the subsequent broker activity.

As it stands, brokers expect Rolls-Royce to generate earnings per share (EPS) of 12.6p for 2024. So a share price of 500p would equate to a price-to-earnings (P/E) ratio of about 40. That seems like a stretch to me.

However, if the company was to produce better-than-expected profit guidance tomorrow and/or in August, and brokers raised their earnings forecasts and share price targets again, I wouldn’t rule out a share price of £5 in 2024.

For example, if FY2024 EPS forecasts rose by 25% over the course of the year to 15.75p, the P/E ratio needed for the shares to hit 500p would only be 32. That’s still a very high multiple. But it’s not out of the question for this stock, to my mind.

My call

Personally, I don’t think Rolls-Royce shares will hit the £5 level this year. To hit that price, they would have to rise another 50% or so in a relatively short period of time.

But stranger things have happened in the stock market. And with the shares in a strong uptrend, there is a chance that they could hit that level in 2024.

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.

Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has recommended Rolls-Royce 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.

More on Investing Articles

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

This forgotten FTSE 100 gem could be the best bargain on the stock market

The FTSE 100 is full to the brim of high-quality businesses. But this Fool has his eye on this 'forgotten'…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

Here’s a FTSE 250 stock I’d put 100% of my money into

If this Fool could buy just one stock from the FTSE 250, Games Workshop would be his choice. Here, he…

Read more »

Fans of Warren Buffett taking his photo
Investing Articles

2 reasons Warren Buffett might love this stock, and 1 reason he might avoid it like the plague

Warren Buffett's one of the best stock pickers of all time. But would he approve of Barclays shares? This Fool…

Read more »

Union Jack flag triangular bunting hanging in a street
Investing Articles

Down 28% in a week! What’s going on with the share price of this FTSE 250 British icon?

There’s one stock in the FTSE 250 that took a bit of a battering last week. But I’m not surprised,…

Read more »

Two white male workmen working on site at an oil rig
Investing Articles

At around £28.50, Shell’s share price looks cheap to me

Shell’s share price still looks undervalued against its fossil-fuel-focused rivals to me, despite it pushing back its carbon reduction targets.

Read more »

BUY AND HOLD spelled in letters on top of a pile of books. Alongside is a piggy bank in glasses. Buy and hold is a popular long term stock and shares strategy.
Investing Articles

433 shares in this FTSE 100 dividend superstar could make me £18,803 in annual passive income!

This overlooked FTSE 100 gem has one of the best yields in the index, looks undervalued, and makes me big…

Read more »

Investing Articles

2 under-the-radar investment trusts I’d buy for a new Stocks and Shares ISA

Here are two fantastic trusts that I'd happily snap up today if I were building a Stocks and Shares ISA…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

If I’d put £1k in Games Workshop shares 5 years ago, here’s how much I’d have now!

Games Workshop shares have proved to be a stellar investment in recent years. Charlie Carman examines whether this trend can…

Read more »