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As we enter the final months of the year, it is worth reflecting on the tremendous growth in Rolls-Royce (LSE:RR.) in 2023. The iconic British company was one of the biggest losers of the pandemic. But this year has brought about a sustained turnaround in the stock market.
Boosted by a recovery in the company’s Civil Aerospace division and continued strength in Defence, Rolls-Royce’s share price has risen 122% since January and 223% in 12 months. This stellar performance begs the question: will Rolls-Royce be the top performer? FTSE 100 stock in 2023?
Let’s see how the stock compares to other high-performing stocks in the leading UK index.
Top FTSE 100 performers
The five best-performing FTSE 100 stocks year-to-date (YTD) include companies spanning a range of sectors. Rolls-Royce leads the pack. The retailer follows Marks and Spencerwhich was recently readmitted to the index after a four-year hiatus in the FTSE 250.
To complete the quintet, energy giant Centralspecialized manufacturing investor melrose industries, and private equity firm Group 3i All of them have also generated stellar returns for shareholders.
| FTSE 100 shares | Performance to date |
|---|---|
| Rolls-Royce | +122% |
| Marks and Spencer | +87% |
| Central | +69% |
| Melrose Industries | +65% |
| 3i | +55% |
| FTSE 100 Index | +1% |
With three months of trading left in 2023, Rolls-Royce has built a considerable lead over other FTSE 100 shares in terms of its performance since January.
Of course, that can change quickly in the volatile world of stock market investing. However, it’s fair to say the company is a strong contender in the race to become this year’s top Footsie stock.
It’s also worth mentioning that Marks and Spencer plans to reintroduce its dividend in November. As such, M&S will join the other three companies in rewarding investors with passive income. Rolls-Royce is the only stock in the group that will not pay dividends this year.
What’s next for Rolls-Royce stock?
If we take a look at Rolls-Royce’s half-year results, there are many reasons to be optimistic. Underlying operating profit soared from £125m to £673m. Additionally, group revenue rose from £5.3bn to £7bn, driven by increases across all divisions.
The outlook for the company’s largest unit, Civil Aerospace, has improved considerably since the dark days of the pandemic. Engine flying hours have recovered to 83% of 2019 levels as pent-up demand for international travel supports the airline industry.
However, this figure has not yet fully recovered to its pre-Covid levels. Long-term shareholders can attest to this. Rolls-Royce’s share price is down 33% in five years despite this year’s notable rally.
The board has identified reducing net debt and achieving an investment grade rating as key objectives. Progress on these metrics has been solid so far. Potential investors should closely monitor the development of the situation to ensure that the momentum continues.
Overall, it is worth bearing in mind that few engine manufacturers can rival Rolls-Royce’s market position and unique experience, whether in civil or military environments. These high barriers to entry provide the company with some key advantages.
I own Rolls-Royce shares and will continue to do so. I think there’s a good chance the company will be the best performing stock in the FTSE 100 this year. However, potential investors should be aware of notable downside risks to the current share price.
