Rolls-Royce Holdings PLC's (LSE:RR.) share price target has been pushed higher by both Citi and JP Morgan following a strong first half for the aerospace and engineering group.
While the stock may look pricey if you focus on profit multiples, investors could find reassurance in the company’s robust cash flow generation, which analysts argue is a more reliable yardstick for value.
Citi has raised its target price substantially to 1,101p from 641p, citing three key reasons.
First, it increased its profit forecasts for 2025 by 23% and for 2029 by 28%, while free cash flow expectations were lifted by 13% this year, rising to 20% growth by 2029.
Second, Citi boosted its mid-term profit growth assumption to 8% from 4%, aligning with anticipated fleet growth in the aviation sector.
Finally, Citi added roughly 40p of value for Rolls-Royce’s small modular reactor (SMR) ambitions, a potential new growth avenue in the 2030s. The firm forecasts a compound annual profit growth rate of 12.3% between 2025 and 2030, with cash conversion peaking at 120%, before settling around 114%, underlining the company’s strong cash flow discipline.
JP Morgan echoes this optimism, upgrading its price target to 1,245p, a 20% increase reflecting both higher earnings estimates and a more generous valuation multiple.
The bank boosted its earnings per share projections for 2025 to 2030, with a notable 19% upgrade for 2025 largely due to a one-off provision release.
It sees Rolls-Royce as a compelling investment thanks to its exposure to several strong markets: commercial aerospace, data centres, German defence, and a renaissance in civil nuclear power.
JPM highlights the company’s ongoing transformation efforts and “self-help” initiatives that improve efficiency and profitability across its divisions.
Importantly, Rolls-Royce’s results are now driven by three core divisions with the potential for the SMR business to become a fourth leg in the coming decade, reinforcing the stock’s growth story.
In afternoon trading, the shares were up 2.5p at 1,074p.