The Rolls Royce (LSE: RR.) The share price is currently at £4.72. It was one of the best performers on the FTSE100 last year.
The stock flirted with the £5 mark in 2024. In fact, it spent a very brief period just above it. I wonder what the next 12 months might bring for the British icon.
Swing
The recent performance and the momentum the stock has gained suggest that it could continue to rise. It is currently 127.6% higher than the price of £2.08 a year ago. The stock has also gained well in 2024. It started the year at £2.98. So far, it is up 58.5%.
This means that it has outperformed the FTSE 100. Last year, the index rose by 7.4%. In 2024, it will rise by 4.7%.
Turn around
But there is a good explanation for the steady increase in share price: The company is in the process of a turnaround and is making great strides forward.
When he took over in January 2023, CEO Tufan Erginbilgiç described the company as “a burning platform“Since then, he has made great strides in restoring the company to its former glory.
We last saw this in the half-year results released on August 1. For that period, Rolls reported an operating profit of £1.1 billion, up 74% from the same period in 2023. The company also reported free cash flow of £1.2 billion and reinstated its dividend.
If this strong performance continues, there is no indication that the price will not continue to rise.
Analyst forecasts
Another way I can try to gauge Rolls’ performance is by looking at what experts think. I must note that analysts’ forecasts can be, and often are, wrong, but I still think they can serve as a good guide alongside an investor’s own research.
15 analysts offer a price target for the next 12 months. Their average price target is £5.32, which represents a premium of 12.6% over Rolls’ current price. The highest target is a whopping £6.75. The lowest is £2.40.
Any value left?
So the analysts are optimistic. But I see a few issues that could hold Rolls-Royce back. First of all, the shares look a little expensive. They are currently trading at 17.1 times earnings. That is more expensive than the FTSE 100 average. That means it is cheaper than the industry average.
Looking ahead, Rolls trades at 31 times forward earnings, which seems a little expensive to me. The rise over the past year is impressive, but it may raise questions about whether there is still value to be had from the stock.
Are further profits planned?
Rolls will face further challenges, one of which is supply chain issues. The company has already announced that it expects a cash impact of £150-200 million on its free cash flow forecast for the year due to these issues. In addition, it expects these challenges to continue for a further 18-24 months.
Still, I personally believe that Rolls will continue its good form given how dynamic the company is. I could be wrong, but I am impressed with the work Erginbilgiç has done to get the company back on track.
The company has now raised its full-year forecast, with operating profits expected to rise to £2.3 billion from £2.3 billion previously. For this reason, I am considering buying some of its shares.
The post “What could the next year hold for Rolls-Royce’s share price?” first appeared on The Motley Fool UK.
Further reading
Charlie Keough does not own any of the stocks mentioned. The Motley Fool UK has recommended Rolls-Royce Plc. The views expressed on companies mentioned in this article are those of the author and may therefore differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.
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