Where might the Rolls-Royce Holdings (LSE: RR.) share price go in the next few months, next year, 10 years?
I’ve been asking that for some time now. And however optimistic I think I’m being, it just keeps crashing through my most upbeat guesses.
Even after some top gains since being down in the dumps in 2022, the Rolls-Royce share price has soared by another 83% so far in 2024.
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What next?
One approach could be to look at broker forecasts, and see where their share price targets are going.
Right now, City analysts are still bullish, with a ‘buy’ consensus on the stock. And the most bullish of them has set a price target of 675p.
That’s with Rolls shares at 549p at the time of writing. So it would mean a further 23% rise on the cards if that estimate is right. It might make the valuation look a bit hair-raising, though.
We’re looking at a forward price-to-earnings (P/E) ratio of 31.7 now. And a share price rise like that could take it up to 39. That would be about 2.5 times the long-term average for the FTSE 100.
But wait…
That’s only the best estimate, though. The average price target stands at 536p, a bit less than today’s level. And the most pessimistic analyst has it down at a painful 240p, for a whopping 56% fall.
What should we take from this?
It makes me suspect that the so-called experts out there really don’t have much of a clue when it comes to putting a rational value on Rolls-Royce shares.
But it can, at least, give us an idea of which way the winds of sentiment are blowing. And I can’t help thinking the City expects the Rolls-Royce share price rise to run out of steam before long.
Rationality
Another angle is to look at earnings forecasts. And then also think about what the company itself says.
Doing that suggests earnings per share (EPS) of about 23p by 2026. On the current price, it would mean a P/E of 23.9, which might justify a higher future share price.
At the interim stage, reported in August, Rolls raised its full-year guidance. The board said it expects operating profit of between £2.1bn and £2.3bn.
Last year, underlying operating profit came in at £1.6bn. That would mean a 37.5% rise using the mid-point of the latest range. It sounds like it backs up that earnings forecast, but it makes me nervous.
I fear shareholders could latch on to the £2.3bn upper end, and expect Rolls to beat even that. But if the company just hits the middle of its predictions, I reckon many could see that as a fail. And a sell-off could hit the share price.
Fair value
A fair value for Rolls shares, I think, will depend on what this year actually brings. And on how the outlook appears in 2026. Oh, and how the sentiment is going.
You know, the more I look at it, the more I think that price target range of 240p to 675p might genuinely reflect today’s huge uncertainty.
