Traded on the London Stock Exchange under the ticker symbol RR.L, Rolls-Royce is a constituent of the prestigious FTSE 100 Index.
Rolls-Royce Holdings plc (LON: RR) is a well-known multinational aerospace and defence company. Established in 1906, Rolls-Royce has a history of designing, manufacturing, and distributing power systems for aviation and other industries. It is also well-known for its luxury cars.
Today, the company holds the title of the world’s second-largest maker of aircraft engines and boasts major operations in the marine propulsion and energy sectors. It operates in over 50 countries and has customers in over 150 countries.
Rolls-Royce is a significant player in the global defence industry. According to VisualCapitalist, it ranks as the world’s 22nd-largest defence contractor based on defence revenues. Rolls-Royce also holds a strong position in commercial aircraft engine manufacturing, accounting for roughly 18% of the market share.
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Rolls-Royce Share Price & Dividends
The Rolls-Royce share price struggled for a significant period, dropping to significant lows back in October 2020 after grinding lower for a number of years. However, since October 2022, the stock and company have staged a significant turnaround.
Rolls-Royce last paid dividends in 2019, before the pandemic. However, the feeling is that if the turnaround continues, then dividends will soon follow.
Rolls-Royce EPS and Revenue Breakdown 2020-2023
| Rolls-Royce | Annual EPS | Annual Revenue |
|---|---|---|
| 2020 | -67.48p | £11.43 billion |
| 2021 | 0.11p | £10.95 billion |
| 2022 | 1.95p | £12.69 billion |
| 2023 | 13.75p | £15.41 billion |
Aerospace and Defence Industry Comparison
Rolls-Royce Share Price Forecast
While the overall analyst consensus suggests significant bullishness on the stock (10 Buys, one Hold, one Sell rating), analysts at Berenberg recently downgraded the stock to Sell from Hold with a price target of 240p, up from 100p per share. The firm believes that pricing, the most significant factor for Rolls-Royce’s intrinsic valuation, will be a challenge due to the current issues of reliability for key engines that serve the airline industry. The industry typically operates on low margins and appears to be approaching peak earnings, according to Berenberg.
Despite Berenberg’s bearishness, analysts at Goldman Sachs recently upgraded Rolls-Royce to Conviction Buy from Buy with a 398p price target. The investment bank sees the FTSE 100 company’s strong cash generation enabling a resumption of shareholder returns (dividends).
Our View: The prospects for Rolls-Royce certainly look promising. The company’s revamp under chief executive Tufan Erginbilgic, who took over in January 2023, has been fruitful so far. With the company expecting continued growth, Rolls-Royce is definitely a stock to take a deeper look at.
Share Suitability
When it comes to investing in any stock, there are various factors to consider. Some of these factors may not be to do with the company itself, but your own investing goals and personal characteristics. Considering Rolls-Royce’s position in the market, here’s a breakdown of who might find their shares appealing:
While Rolls-Royce’s recent growth has been very strong, it may slow down at some point and become more steady. As a result, patience is crucial, as the aerospace and defence industries are cyclical, meaning the stock may be more suited to investors with a long-term horizon.
The aerospace and defence industries are subject to various external factors, including geopolitical tensions, economic fluctuations, and technological advancements. These factors can significantly impact Rolls-Royce’s performance and share price. Investors should be comfortable with some degree of volatility.
Rolls-Royce has shown potential for future growth, especially in new engine technologies and the recovery of the commercial aviation sector. However, its recent share price increase might suggest it’s already priced for some of this growth. Careful research is needed to determine if it falls more into the growth or value category for your portfolio.
As we know, Rolls-Royce hasn’t paid a dividend since before the COVID-19 pandemic. Even then, it wasn’t the highest dividend payer. However, the stock may be attractive for those who are patient enough to wait on the potential reinstallment of dividends. However, it should be considered that it is not guaranteed.
Whilst it may seem obvious, if you believe the recent positive momentum in RR share price is likely to continue, you might consider investing in Rolls-Royce shares. However, momentum investing carries inherent risks, and thorough research is essential before chasing a trend.
