Market consensus is that Rolls-Royce Holdings PLC (LSE:RR.) will outperform the market, ahead of its capital markets day on 28 November.
Latest estimates suggest that flight-run hours for Rolls-Royce engines could be even higher than previously predicted.
Analysts at UBS have weighed in on the stock, reconsidering their previous flying estimates for the second half of the year, saying that their earlier models of Rolls-Royce's flights now look “too low”.
This bodes well for the company’s cash flow, according to analysts.
UBS analysts previously modelled for Rolls-Royce to run 88% of flight hours in the second half of the financial year.
In a research note on Friday, those analysts caveated that estimate, saying previous forecasts now look potentially “2-3% too low, with positive implications for FY cash flow estimates”.
Morgan Stanley (NYSE:MS) analysts similarly said this week that the company’s cash flow potential was “significantly mispriced”, implying further upside potential following stronger-than-expected engine flying activity in the second half.
Citi analysts said yesterday that the bank was “opening an upside 30-day catalyst watch” for the company's stock but gave no more information.
According to analysts at UBS, Rolls-Royce engines flew 89% of the flying engine hours recorded in the same week in 2019 in the week ending November 5.
That week, Rolls-Royce engines flew for 292,000 hours, 89% of the same week in 2019, based on the UBS Evidence Lab Global Airline Traffic Monitor which draws data directly from air traffic transmitters.
In October as a whole, Rolls-Royce engines flew 1,311,000 hours, 89% of 2019 levels, and 5,323,000 hours in the months of July to October, 87% of 2019 levels.
Analysts at UBS said long-term service agreement engine flying hours ran slightly ahead in terms of recovery versus 2019 levels.
Revisions to the company’s engine flying hours estimates were enough for it to get on the list of Bank of America’s favourite European stock picks this week.
Analysts at BoE said an anticipated strategic review expected at the investor day would provide divisional targets for the mid-term, suggesting “significant upside” in Power Systems margins and to a lesser extent Defence.
According to SharePad data, analysts are equally split between ‘buy’ and ‘hold’ recommendations for Rolls-Royce.
Rolls-Royce is broadly forecast to boost turnover by 8.38% in 2023 to £14.65 billion, with growth in sales expected to continue to be over 7% per year through to 2025.
According to estimates, its pre-tax profit is expected to be £983 million in 2023 and to grow at a rate of 22.8% in 2024.