Jet engine maker Rolls-Royce Holdings PLC's (LSE:RR.) strong interim results have led to a price target upgrade from JPMorgan as it increased its earnings and cashflow forecasts.
The investment bank raised its target price to 535p from the previous 475p.
JPMorgan increased its earnings per share (EPS) estimates for 2024 and 2025 to 18.6p and 20.2p respectively, citing improved sales driven by stronger end markets and price increases by Rolls-Royce.
Free cash flow (FCF) estimates for the same period have also been raised by the bank, reflecting better cash conversion in all divisions and higher operational efficiency, leading JPMorgan to project that Rolls could have no net debt by the end of the year.
In line with this, Rolls-Royce said it would be reinstatoing its dividend at 30% of its underlying net income for full-year 2024, with plans to increase this payout ratio to 30-40% in the following years.
“Relative to our expectations, the improved FCF is all coming from better profit and not from higher customer advances on long-term service agreements, so this is a ‘high-quality’ FCF upgrade in our view,” said JPM.
Rolls-Royce shares added 3.4% on Tuesday.