JP Morgan has raised its price target on Rolls-Royce Holdings PLC (LSE:RR.) to 1,625p from 1,500p, pointing to a brighter outlook for the engineering group's Power Systems arm.
The broker, which rates the shares overweight, said the new target implied 16% potential upside over the next 18 months.
Analyst David Perry gave two reasons for the more bullish stance.
First, he lifted earnings per share forecasts for 2027 to 2030 by 3% a year, after reassessing the prospects for the Power Systems division.
Second, JP Morgan switched to a sum-of-the-parts approach to valuing the company.
Perry said the new method better captured the value of Rolls-Royce's non-aerospace and defence businesses, namely Power Systems and its small modular reactor nuclear venture.
The broker had previously valued the group by applying a single target multiple across the whole business.
The shift reflects growing investor interest in Rolls-Royce's nuclear ambitions, where it is developing small modular reactors as a future source of low-carbon power.
JP Morgan reiterated that Rolls-Royce remained one of its top picks in the European aerospace and defence sector.
