Rolls-Royce‘s (LSE:RR.) rampaging share price remains one of the FTSE 100‘s biggest stories. Up 6% since 1 January, it continues to outperform the broader blue-chip index. Over a 12-month horizon, the engineering giant has now more than doubled in value.
The question is, can Rolls-Royce shares continue to rise? City forecasts suggest so — 16 analysts who rate the stock have generated an average share price target of £13.33. That suggests a 5% gain over the next year.
Clearly, that represents a sharp slowdown from the last 12 months. However, one bullish forecaster reckons the share could rise as high as £16.25, up 27% from today.
Could Rolls really do it? Here are five reasons why it might.
Booming markets
Perhaps the greatest price catalyst could be another strong year for the civil aviation sector. This is a key segment for the company — it makes roughly 70% of underlying operating profits from activities like building plane engines and providing aftermarket services to airlines.
News coming out the industry has certainly been encouraging so far in 2026. American Airlines has just reported record revenue for Q4, for instance, and predicted “significant upside” this year and beyond. The International Air Transport Association (IATA) has also tipped record net profit of $41bn for the industry in 2026 as passenger numbers swell.
The FTSE 100 company should also be supported by rising defence budgets that boost hardware and aftermarket services. Analysts at GlobalX think “global defence spending could surpass $3.6 trillion by 2030, nearly 33% above 2024 levels” as geopolitical volatility grows.
Rolls-Royce shares could also receive a boost on news of progress for its small modular reactors (SMRs). This won’t be generating earnings until the 2030s, but positive news on project development, financing, and contract wins could give the stock price an extra boost.
Restructuring and buybacks
The firm’s sweeping restructuring drive could also deliver more juicy returns that drive the share price. Activities like contract repricing and widescale cost reductions have delivered enormous boost to margins and cash flows, capturing investor attention in the process.
For 2025, Rolls has tipped free cash flow of £3bn to £3.1bn, up from £2.4bn in 2024. News of more cash-boosting restructuring gains might also prompt further share buybacks that grab the market’s attention.
It executed £1bn of buybacks in 2025, and announced another £200m worth of repurchases in December. This month’s full-year trading update is tipped to outline additional bumper returns.
Is there a catch?
While things are looking good for Rolls-Royce, it begs the question: isn’t all this already baked into the share price? I think it might be.
Today the company’s forward price-to-earnings (P/E) ratio is 42.6 times. That stratospheric reading is way above the long-term average around 15, and also the broader FTSE 100‘s current forward multiple of 13.4.
This creates two potential problems in my mind. It might limit the scope for further price gains. At the very worst, it could prompt a sharp price correction if doubts over its prospects as a robust growth stock start to emerge. Ongoing supply chain issues, rising currency translation pressures, and an economic downturn that hit key markets are a few dangers that could scupper its progress.
