The Rolls-Royce (LSE: RR.) share price currently sits at £4.72. It’s been one of the best performers on the FTSE 100 in the last year.
The stock’s flirted with the £5 mark in 2024. In fact, it spent a very brief period just above. I’m wondering what the next 12 months could entail for the British icon.
Momentum
Recent performance and the momentum the stock’s gained would suggest we could see it keep rising. It’s currently 127.6% higher than the price of £2.08 a year ago today. The stock’s also made good ground in 2024. It started the year at £2.98. So far, it’s risen 58.5%.
That means it’s outperformed the FTSE 100. In the last year, the index is up 7.4%. In 2024, it’s climbed 4.7%.
Turnaround
But there’s a good explanation why the share price has been steadily rising. The business is undergoing a turnaround and making great strides with it.
When taking over back in January 2023, CEO Tufan Erginbilgiç described the business as “a burning platform”. Since then, he’s made solid progress in returning the firm to its former glory.
We saw this most recently in its half-year results released on 1 August. For the period, Rolls posted an operating profit of £1.1bn, 74% higher than the same period in 2023. It also posted £1.2bn in free cash flow, as well as reinstating its dividend.
If it keeps up this strong performance, there’s nothing to suggest the stock won’t keep ticking upwards.
Analyst forecasts
There’s another way I can try and assess how Rolls could perform. That’s by looking at what experts think. I must note that analysts’ forecasts can be, and often are, wrong. But I still think they can be used as a good guide alongside an investor’s own research.
There are 15 analysts offering a 12-month target price. They’ve an average target of £5.32, representing a 12.6% premium from where Rolls is today. The highest target’s a whopping £6.75. The lowest is £2.40.
Any value left?
So analysts are bullish. But I do see a few issues that could hold Rolls back. To start, its shares do look a tad expensive. Right now, they trade on 17.1 times earnings. That’s more expensive than the FTSE 100 average. That said, it’s cheaper than the industry average.
Looking ahead, Rolls trades on 31 times forward earnings. To me, that looks a bit pricey. Its rise in the last year’s impressive. But it could raise the question of whether there’s any value left to squeeze out of the stock.
More gains to come?
Rolls will face further challenges. One is supply chain issues. The business has already said it expects a £150m-£200m cash impact related to these issues on its free cash flow guidance for the year. Furthermore, it expects these challenges to continue for another 18-24 months.
That said, I personally think we could see Rolls continue with its fine form, given the momentum it has. I could be wrong but I’ve been impressed with the work Erginbilgiç’s done to turn the company around.
It has now lifted its full year guidance. It believes operating profit may come in as high as £2.3bn, from £2bn previously. As such, I’m considering buying some of its shares.
