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Are Rolls-Royce shares undervalued?

Despite a 30% rally in the last one month, Rolls-Royce shares are still not trading at fair value, analysts say.

  • Rolls-Royce (LON: RR) share price cleared 145 pence this week
  • The aircraft engineer has appointed the former Chief Technology Officer of Airbus as its new CTO
  • JPMorgan, Berenberg and Redburn analysts recently raised their price targets on RR
  • Keen to take advantage of Rolls-Royce’s rising share price? Open an account with us to go long on the stock now.

Rolls-Royce stock price: what’s the latest?

Rolls-Royce shares are up some 4% this week, on the back of new senior executive appointments and management changes.

Grazia Vittadini, former CTO at Airbus, will be joining the aviation engineering giant as Chief Technology Officer, Designate, from 02 November 2021.

Vittadini, who spent almost 20 years at Airbus and was most recently its Chief Technology Officer, will succeed Paul Stein when he steps down at the end of the first quarter of 2022.

Separately, Harry Holt, Chief People Officer, has decided to leave to take up the post of Chief Operating Officer at Vertical Aerospace. His successor will be announced in due course.

How do analysts currently view RR?

The aircraft engineer’s share price has skyrocketed over 28% in the last one month and nearly 40% year-to-date, thanks to improving forecast for the aviation sector and a new 30-year deal with the US Air Force.

The latest price case came from JPMorgan analysts, who raised their price target on Rolls-Royce to 150p from 130p alongside a ‘neutral’ call on 28 September.

According to the firm’s earlier investment thesis, the higher price target was due to higher earnings expectations over the next three years.

Elsewhere, Berenberg raised its price target on RR shares to 160p from 150p with a ‘buy’ rating, citing the re-opening of US borders to vaccinated individuals from Europe.

‘For Rolls-Royce, it will help to perpetuate positive trends in engine flying hours (EFH) into H1 2022 and beyond, in our view,’ the analysts said.

‘Even after a 12% rally since the US news, the market is still ascribing very little value to the longer-term potential,’ they added in a 23 September note.

JPMorgan also stated that the 100% sale of Rolls-Royce’s Spanish unit ITP Aero to consortium-led investment house Bain Capital on 27 September 2020 for approximately €1.7 billion (£1.45 billion), will boost the group’s free cash flow to around £750 million by 2023.

Equity brokerage Redburn, meanwhile, upgraded the RR stock to a ‘buy’ from ‘neutral’, citing potential ‘material upside’ in the engine maker’s shares in the next couple of years with wide-body flight hours expected to recover.

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