Rolls-Royce share price to hit 850p!? Here are the latest expert projections

Analysts predict the Rolls-Royce share price could surge by another 50% in the next 12 months as free cash flow generation soars!

| 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: Rolls-Royce plc

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.

The last two years have been exceptional for the Rolls-Royce (LSE:RR.) share price, skyrocketing by over 500% since the start of 2023. A new management team executing a radical overhaul of the business seems to have been just what it needed to get back on track after struggling for years.

However, with such impressive growth under its belt, surely the stock’s due for a bit of a correction? Well, not every analyst is convinced. In fact, looking at the latest set of 12-month share price forecasts, Rolls-Royce could hit as high as 850p by this time next year.

In other words, another 50% increase in its market-cap might be just around the corner. But is this realistic or just wishful thinking?

Should you invest £1,000 in NIO right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if NIO made the list?

See the 6 stocks

Inspecting Rolls-Royce’s valuation

From a relative valuation perspective, the group’s price-to-earnings ratio suggests further share price gains could be ahead. After all, at 20.6 times earnings, Rolls-Royce shares are trading firmly below the aerospace & defence sector’s 35.6 median average.

Looking at the firm’s latest trading update, it certainly appears to be holding its momentum to boost its valuation further. Underlying operating profit’s on track to land between £2.1bn and £2.3bn for its 2024 fiscal year, with free cash flow generation following closely at £2.1bn to £2.2bn. And looking further into the future, these figures could rise to £2.5bn-£2.8bn and £2.8bn-£3.1bn respectively by 2027.

The free cash flow generation’s particularly exciting as it’s sufficient to wipe out the remaining £967m from its international pension deficit as well as bring down its remaining £5.8bn debt burden. It also paves the way for increased investment into its Power Systems division to accelerate small modular reactor (SMR) research.

SMR research is particularly important since current projections estimate this could become a $295bn market by 2043, making it a massive long-term growth opportunity with currently limited competition. And it’s no secret that being a first mover in a brand new massive industry can be an immensely lucrative and powerful advantage.

Taking a step back

While management guidance and long-term tailwinds certainly paint a pretty picture, not everyone’s convinced. In fact, one analyst predicted that the stock price could collapse to as low as 240p, with the average consensus sitting at 580p – roughly where the FTSE 100 stock trades today.

Let’s start with its Civil Aerospace sector, which is notoriously fickle. Right now, demand for its engines and maintenance services is pretty strong. But we’ve already seen such momentum evaporate in the past whether from economic pressure, volcanic eruptions, or terrorism – the latter of which seems to have an elevated risk at the moment given all the geopolitical conflicts breaking out in recent years.

As for its SMRs, the technology’s undeniably exciting yet fundamentally unproven. Investors simply don’t know how profitable these reactors will be. So even if these products end up generating a lot of revenue, the profit and free cash flow margins could be far from impressive.

There’s no denying the company’s in much better shape than a few years ago. But with a lot of expectations already baked into its valuation, I think an 850p share price target’s a bit ambitious. So for now, I’m not looking to add any of the shares to my portfolio.

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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.

Zaven Boyrazian 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

Calendar showing the date of 5th April on desk in a house
Investing Articles

Here’s how a £20k ISA could produce £1,580 of passive income in the next year

A Stocks and Shares ISA stuffed with dividend shares can be a lucrative source of passive income. Christopher Ruane explains…

Read more »

Investing Articles

Prediction: 12 months from now, £5,000 invested in Tesla stock could be worth…

Tesla stock has endured a miserable year so far, falling by 29%. Muhammad Cheema takes a look at how it…

Read more »

Investing Articles

See what £10,000 invested in Tesla shares at their mid-December peak is worth today 

As the world absorbs the full scale of Donald Trump's tariffs, Tesla shares are reeling. Investors who bought the stock…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Dividend Shares

2 ‘safe’ LSE dividend stocks to consider as global markets sell off

As global markets experience high levels of volatility due to economic uncertainty, investors are piling into these ‘safe-haven’ dividend stocks.

Read more »

Investing Articles

US stock market rout: an unmissable opportunity for investors?

His tech-heavy portfolio has been smashed by Trump’s tariffs. However, Dr James Fox believes there could be some opportunities in…

Read more »

Investing Articles

After a 13% ‘Trump tariff’ fall, is the Barclays share price too cheap to miss?

Does the Barclays share price fall mean we should all panic and run screaming from the stock market? Nah, of…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

2 investment trusts to consider for a Stocks and Shares ISA

These two investment trusts have a different focus -- but our writer sees both as worth considering, one more for…

Read more »

Investing Articles

Deutsche Bank reiterates Buy rating on 9.6% yielding FTSE 250 stock that was “most shorted in UK”

Our writer investigates why a major broker remains optimistic about a FTSE 250 stock that was once the most shorted…

Read more »