The last year has seen Rolls-Royce (LSE: RR.) post a spectacular performance. During that time, its share price is up 118.1%.
That means it has been the best performer on the FTSE 100 during that time. The second best is Intermediate Capital Group, which is up ‘just’ 68.3%.
But at £4.91 a share, what’s next for the British manufacturer? Albeit briefly, we’ve seen its share price top £5 this year. It peaked at £5.03 back in August. Will it keep rising? Or after its strong run, should we expect the stock to be pulled back in the near future?
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Broker forecasts
What Rolls does next is anyone’s guess. The stock market’s unpredictable. However, one guide investors can use is broker forecasts. It’s worth noting that forecasts must be taken with a pinch of salt. They have the potential to be wrong. Even so, I still think they can provide a good barometer.
Fourteen analysts offering a 12-month target price have an average price of £5.81. That represents an 18.3% premium from Rolls’ current price. Of those, the highest target’s £6.75, which is 37.5% higher than where the stock is at now.
That highlights analysts are clearly bullish on what Rolls could do in the coming year. What’s more, of the 26 analysts offering recommendations, 16 think the stock’s a Buy, nine Neutral and just one thinks Rolls is a Sell.
Impressive U-turn
That makes sense. The stock’s been on a tear in the last year. From its 2020 struggles, the business has massively turned itself around.
That’s largely due to the work completed by CEO Tufan Erginbilgiç. He took over back in January 2023 and since then has made great strides in returning the British icon to the powerhouse it once was.
We saw the latest impact of this in the firm’s half-year results. During the period, Rolls posted an operating profit of £1.1bn, up 74% from the same period last year.
Off the back of its strong opening six months, Rolls has lifted its full-year guidance. It now predicts operating profit may clock in as high as £2.3bn, from £2bn previously.
Looking more long term, the business is targeting up to £2.8bn in operating profit by 2027. If it manages to achieve that, there’s nothing to suggest that the stock will be hitting the brakes any time soon.
Not a smooth journey
But I do see a few speed bumps that could hinder its progress. One is supply chain issues. In its update, it revealed that it expects a £150m-£200m cash impact related to these issues on its free cash flow for the year. It also said these challenges will potentially continue for the next 24 months.
On top of that, the stock trades on 24.5 times forward earnings which, in my opinion, looks expensive.
A stock I like
That said, Rolls is a business I’m considering for my portfolio today. Even after its impressive rise, I still think the company has a lot more to give as it continues with its turnaround mission. I’m hoping to have some spare cash this month. If so, I’ll be picking up some shares.
