UBS remains bullish on the aerospace engineer ahead of next month's trading update, despite cutting its target on peer group derating.
UBS has reduced its price target on Rolls-Royce Holdings PLC (LSE:RR.) from 155p to 150p but retained its buy rating, with the bank arguing the shares offer around 18% upside from their current level of 1,278p.
The cut reflects a derating across UBS's peer group rather than any deterioration in the company's fundamental outlook, with the bank's earnings forecasts for 2026 through 2028 virtually unchanged.
Ahead of Rolls-Royce's first-quarter trading statement on 30 April, UBS does not expect the update to act as a meaningful catalyst for the stock either way, forecasting a straightforward reiteration of full-year 2026 guidance.
UBS flags that engine flight hours (EFH), a key metric for the civil aerospace aftermarket that drives lucrative long-term service revenues, are tracking slightly below prior expectations, running at around 108% of 2019 levels year-to-date, partly due to disruption from the Middle East conflict.
The bank has trimmed its EFH forecast to 115% of 2019 levels for 2026, from 118% previously, and models a 25 basis point margin headwind from 2028 onwards alongside a 1-2% reduction in aftermarket growth estimates.
Despite those adjustments, UBS continues to model £6 billion in earnings before interest and tax (EBIT) for 2028 and £5.1 billion in free cash flow, both within Rolls-Royce's own guidance ranges.
UBS expects the trading statement to include positive commentary on Defence and Power Systems demand, potential contract wins, including a recent Bundeswehr announcement, and an update on progress with the company's share buyback programme.