June has brought upgraded broker price targets for Rolls-Royce Holdings‘ (LSE: RR.) shares, and they’re heading ever upwards.
Analysts at Bank of America have repeated their Buy stance on Rolls, and set a price target at 1,740p. And that’s 24% ahead of the closing price on Monday (22 June). So what might power this next upward step?
Driving further growth
The Rolls-Royce story of the past few years has been one of recovery. From near wipe-out when the pandemic all but halted aviation, to a thriving growth stock generating cash hand over fist — few companies have turned things round so well, so quickly.
But we’re past that stage. And analysts and investors alike are basing their valuations on future steady growth. But while some have their dreams fixed on a profitable future for those small modular nuclear reactors (SMRs), Bank of America (BoA) doesn’t. And it’s not all about today’s defence premium either.
No, BoA has its focus firmly on good old flying hours…
Rolls-Royce reported large engine flying hours at c.115% of FY19 levels in 1Q26, which reflected a strong Jan-Feb period, followed by a softer March that improved sequentially through the month. Into 2Q, our data point to a continued recovery: April and May have sequentially improved versus March.
Bank of America research note
So flying hours are back significantly above where they were before the pandemic, even in the face of widespread Middle East turmoil. It’s been a cracking recovery.
They’re not alone
Berenberg, in its most recent update, noted that Rolls-Royce’s ‘best-in-class’ engine fleet is the youngest among big suppliers (adjusted for capacity). And it’s seen the biggest jump in engine hours among European competitors. Rolls engines also command the biggest share of the widebody market, which shows better fuel-cost resilience.
We revise up our forecast for Rolls-Royce’s large-engine EFH in 2026 by 1 [percentage point] to 6%, reflecting the strong recovery since the US-Iran conflict began.
Berenberg research note
Berenberg however, only has a 1,430p price target on Rolls-Royce shares, just a fraction ahead of Monday’s close. Still, these are short-term targets. And they do seem to keep inching upwards.
Bridging the gap
My main fear has been that the stock valuation might just have too much future growth built into it. The future for nuclear reactors looks rosy, but they’re not expected to deliver profits before 2030. So what can fill the gap between conventional aviation growth and SMR profits coming online?
Well, it sounds like there might not be a gap. Analysts generally forecast solid earnings growth out at least to 2028, and that’s on the back of existing business.
Valuation
The Rolls-Royce price-to-earnings (P/E) ratio of 38 for the current year is my other concern. Though forecasts are optimistic, I’m not sure there’s enough safety margin in that. It’s a fair bit higher than Nvidia‘s multiple of 22 — and Nvidia leads the world in AI chips.
So I’d say Rolls-Royce shares are definitely worth considering for their long-term growth prospects. But I think investors should be prepared for some medium-term volatility.
Should you invest £5,000 in Rolls-Royce Plc right now?
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Alan Oscroft does not hold any positions in the companies mentioned.
