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After nearly tripling in 12 months, can Rolls-Royce (LSE:RR) shares rise further?
Of course, the answer is that no one knows for sure. But you’d like to think that professional analysts who cover stocks for some of the top brokers would have a better idea than most. After all, it’s literally your job to dig into the numbers to provide earnings estimates and a likely stock price path.
So what is the broker consensus on Rolls-Royce stock right now? We’ll see.
A positive outlook
Analysts are generally optimistic. Of the 19 corridors that cover the FTSE 100 shares in the last three months, none currently have a “sell” rating.
The last bear, investment bank. JPMorgan, lifted its sell recommendation in August. In a note to clients, his analysts wrote: “We were very skeptical that Rolls-Royce would be able to raise its prices so significantly, but it seems we were wrong.“.
More than half (10) of brokers have Rolls-Royce shares down as a “buy” or “strong buy.”
Additionally, of the 17 analysts offering one-year price targets (not all do), we get an average estimate of 223p. This is around 6.7% higher than the current share price of 209p.
However, as is often the case, there is a lot of variation in the minimum and maximum estimates. For example, some see it rising as much as 350p (67% higher) in a bullish scenario. Others believe it will fall back to just under 100p (a drop of 54%) if the turnaround plan underway at Rolls-Royce fails.
Bank of America is optimistic
To take an individual case, Bank of America The analysts published a note on September 21. In this, they estimated that the company has managed to recover 88% of its pre-Covid engine flight hours (EFH).
This is being driven by the ongoing recovery of the Chinese aviation industry, which the pandemic brought to a virtual standstill for three years. The broker now anticipates that a 92% recovery to pre-Covid EFH levels could be in play for the full year.
If so, that would be above Rolls-Royce’s own estimates and could support higher free cash flow.
More good news
Beyond the brokers, there has been more positive news lately. Rolls-Royce has passed the first stage of a UK government competition to select small modular reactor (SMR) developers.
By 2050, the government hopes to increase the UK’s nuclear capacity to around 25% of total electricity generation (up from around 15% last year). The advantage of SMRs over large-scale reactors is that they can be manufactured in manufacturing facilities before being transported anywhere in the country or abroad.
European regulators are also examining Rolls-Royce’s SMR technology. Therefore, this market could prove to be a huge long-term growth opportunity.
Of course, there is also the risk that future governments will back away from these nuclear energy plans.
my movement
Despite all this positive coverage, I still won’t be expanding my involvement. After all, stock price targets are just estimates and often turn out to be inaccurate. And what’s more, the consensus price target is only 6.7% higher.
No, I’ll wait to see what management says at the company’s Capital Markets Day next month before making a decision.
