Few UK stocks have enjoyed the impressive run Rolls-Royce (LSE:RR.) shares have been on over the last few years. Since the start of 2023, the engineering giant has seen its market-cap expand by over 1,000%. And even in the last 12 months, shareholders have continued to enjoy market-beating returns of almost 130%.
Today, with so much growth now under its belt, investors are beginning to ask, how much higher can the Rolls-Royce share price go? So with that in mind, let’s take a look at what the experts are saying.
A 35% potential rise
As one of the most popular FTSE 100 stocks right now, there are a lot of institutional investors tracking this business. And while the overall consensus is bullish, there’s quite a wide range of opinions when it comes to forecasting Rolls-Royce shares.
Citigroup‘s currently the most optimistic with a price target of 1,440p by this time next year. Compared to where the stock’s trading today, that suggests there’s still another chunky 35% of potential return available to investors who are late to the party.
The analysts recently raised their profit expectations of the business all the way out to 2029. That also means they expect free cash flow to improve with cash conversion rates normalising at a solid 114% in the medium term.
Pairing this with the upcoming commercialisation of its small modular reactors (SMR) next decade, Citigroup sees tremendous growth potential for the business. And given the vast improvements seen to date, this bullish stance isn’t hard to understand.
What do other analysts think?
Citigroup isn’t the only bullish institutional investor backing Rolls-Royce. JP Morgan also has the stock on its Buy list, citing similar profit upgrades and efficiency boosts. Yet not everyone’s on the same page.
For example, analysts at Morgan Stanley, Barclays, and UBS remain sceptical about the value some investors are placing on Rolls-Royce’s SMR technology. After all, commercial production isn’t expected to start until the mid-2030’s and that’s plenty of time for competitors to catch up and swoop in.
There are also brewing concerns of cyclical volatility within the aerospace sector. Rising geopolitical tensions and supply chain disruptions are less than ideal for supporting a healthy travel market. As such, these institutions have placed their share price targets between 640p and 720p – up to a 40% drop from current levels!
The bottom line
These analyst opinions represent the more extreme positive and negative range of expectations for Rolls-Royce shares. When looking at all 15 institutional forecasts, most seem to point out that the stock’s already trading close to its fair market value. And so with future growth seemingly already baked in, the company will likely need to surprise investors yet again with better-than-expected results to maintain its recent momentum.
Recent history shows that betting against Rolls-Royce is a bad move. But with other turnaround opportunities in aerospace to explore, I think investors could consider earning better returns elsewhere.
