Image source: Rolls-Royce Holdings plc
Fears for a Rolls-Royce Holdings (LSE: RR.) share price reversal have been growing. We’ve seen an 8.5% fall since late September, despite a positive trading update Thursday (13 November).
The shares are still up 100% in the past 12 months. And over five years we’re looking at more than 1,000%. So it might make sense to consider taking some profit and spreading the risk to other stocks.
But looking at broker price targets, I don’t see a loss of appetite here.
Analysts push ahead
Deutsche Bank has reiterated its Buy stance with a share price target of 1,220p. From the Rolls-Royce share price at the time of writing (14 November), it would mean a 12% increase.
And if that’s not bullish enough, UBS has raised its target to 1,350p for a 24% rise. And an earlier upgrade from Jefferies put the price outlook at 1,290p.
I’m cautious not to put too much trust in analyst forecasts — they’re often among the last to see the end of a bull run coming. But they’re part of the equation. And it’s definitely a boost to see them upping their predictions even when the market is pushing a share price down.
Performance going strong
In the latest update, CEO Tufan Erginbilgiç spoke of “confidence in our full year 2025 guidance of underlying operating profit of between £3.1bn and £3.2bn and free cash flow of between £3.0bn and £3.1bn despite continued supply chain challenges“.
Those supply chain challenges are worth keeping an eye on. Rolls is also exposed to cyclical risk in its aerospace market. Yes, demand for aero engines and services — for both civil and defence purposes — has been growing against a background of increasing global hostility.
But if it peaks, I could see growth expectations falling off. And that might be a signal for a Rolls-Royce share price downturn.
Nuclear power
The nuclear reactor business is getting moving. We just heard the UK’s newest generation power station is to be built on Anglesey, and it will be home to the country’s first three small modular reactors (SMRs).
Rolls is leading their development in other countries, and I reckon the business could be a top driver of future growth.
I’m just not sure all those who’ve been buying Rolls-Royce shares are fully away of how long the lead time might be for significant profits to come rolling in from this business.
Cash and value
Rolls recently repaid a matured $1bn bond and is “making good progress with our £1bn share buyback, having completed £0.9bn at the end of October“.
Even after that, forecasters predict £1.8bn net cash at the end of this year — growing to £6.9bn by 2027.
One risk is a high forward price-to-earnings (P/E) ratio of 42. It could be fine, though it doesn’t exactly provide much safety margin.
There might not be any good underlying reason to expect a share price crash — and analysts do see further rises. But I think investors might consider waiting for full-year results due in February before making any decisions. That’s what I’m doing.
