Even after skyrocketing over 1,250% in the last three years, Rolls-Royce (LSE:RR.) shares could continue marching even higher this year.
The latest forecasts from the analysts at Bank of America have spotted several catalysts that could propel the engineering giant’s share price to as high as 1,615p over the next 12 months. Compared to where the FTSE 100 stock is trading today, that represents another 25.6% jump, potentially transforming £5,000 into £6,279.
So, is Rolls-Royce still among the best stocks to buy in 2026?
The bull case
With management continuing to identify new opportunities to introduce new efficiencies and maximise free cash flow generation, Rolls-Royce’s financials continue to strengthen. And this momentum is only being amplified by stronger spending across all its segments, particularly civil aerospace and defence.
Both Airbus and Boeing are steadily ramping up their aircraft deliveries while simultaneously receiving record new orders. This fleet modernisation within the civil aerospace sector bodes well for Rolls-Royce, driving up demand for its engines while simultaneously helping secure new, longer-term aftermarket services revenues.
Meanwhile, with geopolitical tensions on the rise, higher defence spending has created multiple new opportunities for the business, including:
- The UK’s £8bn deal to supply Türkiye with 20 Typhoon fighter jets using Rolls-Royce’s EJ200 engines.
- An order for 300 Rolls-Royce mtu MB 873 Ka-501 tank engines for KNDS with deliveries starting in 2026.
- An eight-year £9bn deal with the UK Ministry of Defence to design, manufacture, and maintain nuclear reactors for the Royal Navy submarines – the largest defence contract in the company’s history.
With these aerospace & defence tailwinds combined with the added boom for power generators from AI hyperscalers, 2026 could prove to be yet another lucrative year for the engineering enterprise. And it’s not hard to see why the analyst team at Bank of America are so bullish.
What could go wrong?
While the prospect of Rolls-Royce shares climbing above £16 is undeniably exciting. It’s important to highlight that this is currently the most optimistic forecast. Even with these tailwinds in mind, other institutional investors have issued share price targets closer to £12.80 – roughly where Rolls-Royce shares trade today.
That implies that much of the anticipated growth could already be baked into the group’s share price. And at this valuation, there remains very little room for error.
If Rolls-Royce encounters supply chain disruptions or demand starts to wane, it could struggle to keep up with expectations. This is particularly prominent within the civil aerospace sector.
Growing concerns of looming recessions across the UK, US, and Europe could throw a spanner in the works. After all, during economic downturns, air travel activity often suffers, reducing demand for Rolls-Royce’s high-margin aftermarket services. And a similar headwind could emerge if AI infrastructure investments also start to slow.
The bottom line
There’s a lot to like about this business. But with the stock seemingly already priced for perfection, reaching Bank of America’s outlier target of 1,615p could be quite challenging.
Over the last few years, Rolls-Royce has demonstrated why betting against it is a bad idea. But with other FTSE stocks in the aerospace & defence sector trading at far more attractive valuations, I think there are better growth opportunities to explore elsewhere.
