JPMorgan raises Rolls-Royce stock price target on improved outlook

Investing.com - JPMorgan raised its price target on Rolls-Royce Holdings Plc. (LON:RR) (OTC:RYCEY) to GBP10.40 from GBP9.00 on Monday, while maintaining an Overweight rating on the stock. The upgrade comes as shares trade near their 52-week high of $12.47, having delivered an impressive 106% return over the past year. According to InvestingPro analysis, the stock appears slightly overvalued at current levels.

The investment bank increased its 2026-2028 earnings per share estimates by 1-2%, citing better prospects in most markets for the British aerospace and defense company, partially offset by a weaker U.S. dollar exchange rate.

JPMorgan noted this represents a positive outcome, especially considering the firm recently lowered estimates for other European civil aerospace companies due to the weaker dollar.

The higher price target reflects increased target multiples applied to free cash flow estimates, according to JPMorgan, which addressed valuation challenges related to Rolls-Royce’s business model that collects significant advance payments on long-term service agreements.

Despite applying a discount to account for these advance payments, JPMorgan indicated Rolls-Royce still trades at "a very large discount" to competitors Safran (EPA:SAF) and GE on free cash flow yield, with potential for this gap to narrow if the company continues to deliver strong results as expected.

In other recent news, Rolls-Royce Holdings Plc is actively engaging with potential partners to develop engines for the next generation of narrowbody aircraft, marking a significant move back into a market segment it exited over a decade ago. The company plans to invest an additional $4.1 billion in its Ultrafan technology, with the demonstrator expected to be completed in two years. Meanwhile, CFRA analyst Alan Lim Seong Chun has upgraded Rolls-Royce’s stock rating from Buy to Strong Buy, maintaining a price target of GBP9.00, citing the company’s transformation into a more profitable and cash-generative business. This upgrade reflects confidence in the company’s strong operational turnaround and robust free cash flow generation. Rolls-Royce’s recent trading update indicated solid performance across its divisions, despite external challenges, and the company retained its full-year guidance. Additionally, Rolls-Royce was among several European aerospace stocks affected by concerns over U.S. tariffs, which have sparked worries about a global recession and potential impacts on profitability. Despite these concerns, the company has not yet forfeited its year-to-date gains, previously bolstered by expectations of increased military spending in Europe. Barclays (LON:BARC) noted that the depreciation of the U.S. dollar due to higher tariffs could significantly impact the future profitability of European aerospace companies, including Rolls-Royce.

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