Rolls-Royce Holdings PLC (LSE:RR.) is on course to meet profit guidance two years earlier than guidance suggests, UBS analysts anticipate.
Alongside this, the FTSE 100-listed engine manufacturer could surpass free cash flow guidance earlier than expected, the bank said in a note on Wednesday.
Rolls-Royce has guided for pre-tax earnings of £2.5 billion to £2.8 billion by 2027, as well as cash flow of between £2.8 billion and £3.1 billion.
“We do not believe that guidance, as stated, is yet priced in by investors, let alone any upside risks,” UBS analysts noted.
According to the bank’s models, pre-tax earnings should sit at £2.6 billion in 2025 and within the 2027 guidance range two years early.
On an underlying basis, UBS added cash flow could climb to within the 2027 range at between £2.8 billion and £2.9 billion as early as this year.
“Market tailwinds alone suggest 2027 guidance would be conservative, even ignoring expectations of further pricing, efficiency, and potential time on wing improvements,” analysts added, highlighting an expected ramp in engine flying hours ahead.
“We believe 2027 guidance in 2025 is a credible upside scenario if working capital improvements can be made.”
UBS upped Rolls-Royce's share price target from 550p to 640p, implying a 36% upside against Tuesday’s close.