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Investing.com -- Rolls-Royce (LON:RR) on Thursday upgraded its financial forecasts after reporting stronger-than-expected 2024 results, sending its shares surging over 18%.
Analysts at Morgan Stanley (NYSE:MS) noted that the British engineering giant is on track to achieve key financial targets ahead of schedule.
The aerospace and defense company reported a 16% year-on-year increase in revenue, reaching £17.8 billion, outperforming consensus estimates by 3%.
Civil Aerospace emerged as the primary driver, with a 23% surge in revenue, while the Defence and Power Systems divisions also posted modest gains.
Operating profit climbed to £2.5 billion, marking an 8% beat on expectations, and free cash flow soared to £2.4 billion, surpassing forecasts by 9%.
Morgan Stanley analysts described the results as "very strong," emphasizing that Rolls-Royce has exceeded projections and is accelerating the timeline for meeting previously set financial goals.
The company’s guidance for 2025 is ahead of market expectations, with projected operating profit and free cash flow in the range of £2.7 billion to £2.9 billion—8% above consensus estimates.
The positive momentum suggests Rolls-Royce is poised to achieve its 2027 targets two years ahead of schedule.
Rolls-Royce has raised its financial targets, projecting free cash flow of £4.3-4.5 billion by 2028, a 20% jump from prior estimates.
This improvement, fueled by enhanced margins and operational efficiencies, is expected to result in Rolls-Royce generating more free cash than Safran (EPA:SAF), despite a smaller market value, according to Morgan Stanley.
Rolls-Royce will execute a £1 billion share buyback in 2025, indicating management’s confidence. Morgan Stanley sees potential for an expanded buyback if performance remains strong.
"Along with a £1bn share buyback, today’s release provides ammunition for the bull
case," said analysts at Barclays (LON:BARC) in a note.
While the results largely reflect a strong turnaround, Morgan Stanley noted minor concerns regarding flat spare parts sales in the Civil Aerospace segment.
However, the broader outlook remains overwhelmingly positive, with Rolls-Royce benefiting from increased demand for aircraft engine maintenance and efficiency gains in its long-term service agreements.