FTSE 100 earnings: what can we expect from Rolls-Royce in 2024?

Engineering group Rolls-Royce Holdings (LSE: RR) was the top-performing share in the FTSE 100 in 2023, delivering a gain of 220%.

Investor sentiment was boosted through the year by some bullish updates from chief executive Tufan Erginbilgic, who took charge at the start of last year.

Can investors expect a repeat run in 2024? Here’s my take on what we can expect – and what could happen to trigger a sharp move in the share price.

Erginbilgic has already provided the market with fairly clear guidance on what to expect in Rolls-Royce’s 2023 results. The company has provided some medium-term targets it hopes to hit by 2027 too.

The group’s 2023 results — due on 22 February – will give investors a chance to check progress against management guidance. They should also include an updated outlook for 2024.

Big growth forecasts!

Back in August 2023, Rolls-Royce upgraded its full-year outlook, telling investors to expect an underlying operating profit of £1.2bn-£1.4bn for 2023.

And by 2027, Erginbilgic expects operating profit to have increased to £2.5bn-£2.8bn. Based on the current market cap of £28bn, that would value the business on about 10 times operating profit, which doesn’t look expensive to me.

Rolls-Royce has warned that progress toward these targets will be “progressive, but not necessarily linear”. In other words, there could be bumps along the road.

Even so, City analysts have translated the company’s guidance into earnings forecasts that suggest very strong growth over the next couple of years.

These are the latest broker forecasts I can find:

Investors have known about these numbers for a while, so in theory, Rolls’ share price should already reflect this outlook.

As a potential investor, what’s important for me is to consider whether anything new might emerge to change this outlook — and justify a higher (or lower) share price.

What could change?

There are two main things I’ll be looking out for in commentary from Rolls-Royce over the coming weeks and months.

First, the 2024/25 trading outlook. Rolls-Royce’s last market update was in November. I’d be surprised if anything significant has changed since then in the company’s outlook for this year. But things could change as the year unfolds.

Any improvement in guidance could trigger further gains, but I suspect that any shortcomings would be severely punished.

On dividends, broker forecasts suggest shareholders could receive a payout of around 2p per share in 2024, rising to 3.5p in 2025.

As far as I know, the company hasn’t provided any guidance on dividends yet. I’d expect to see something this year. This might prompt some investors to reposition their Rolls-Royce holdings.

Would I buy Rolls-Royce today?

I think Rolls-Royce could be a more valuable business in a few years’ time. But in the short term, I believe the share price is probably up with events.

After such a strong run last year, my feeling is that the shares could take a breather for a while, unless the company issues any further upgrades to its guidance.

I’m going to stay on the sidelines for now and hope for a better opportunity – although I recognise that I might miss out in the meantime.