Rolls-Royce share price tumbles after Morgan Stanley slashes price target

The engineering and aerospace company’s shares continue to come under pressure amid the Covid-19 pandemic, with analysts from Morgan Stanley slashing their price target for the stock.

Rolls-Royce shares continue to come under pressure amid the economic fallout from Covid-19, with analysts from Morgan Stanley opting to slash their price target for the stock this week.

The US-based investment bank cut its price target for the engineering and aerospace company from 770p to 460p a share. Morgan Stanley also cut its price target for Airbus from $150 to $86 a share.

Rolls-Royce closed 10% lower on Friday at 305p a share.

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Morgan Stanley upgrades Meggitt

Morgan Stanley did upgrade UK-based Meggitt to ‘overweight’ on Tuesday, with the investment bank predicting a resurgence for members of the aerospace industry due to an increase in demand for flights once the Covid-19 outbreak passes.

‘We believe Meggitt's high and defensive military exposure may be underappreciated, and that exposure to business and regional jet aftermarket provides gearing into a faster recovery in domestic travel,’ Morgan Stanley analyst Andrew Humphrey said in a note.

‘Recent underperformance creates a tactical opportunity,’ he added.

Despite the upgrade, Meggitt, an aerospace components manufacturer, did also get its price target slashed by the investment bank from 570p to 382p.

‘We do not think consumers' long-term propensity to travel will change materially as a result of Covid-19,’ Humphrey said. ‘Our base case is that many will still be flying home for Thanksgiving or Christmas this year.’

JP Morgan expects Rolls-Royce will need more cash

Earlier this week, analysts from JP Morgan Cazenove said that there is a 75% chance that Rolls-Royce will need to issue equity to strengthen its balance sheet to deal with the impact of the Covid-19 crisis.

The investment bank is anticipating a ‘deeper, longer crisis’ and that credit ratings agencies will likely be forced to downgrade company’s in the aerospace sector like Rolls-Royce to non-investment grade.

‘With the exception of Rolls-Royce, we believe that all the companies we cover in the [European civil aerospace] sector have balance sheet resilience to navigate this downturn,’ JP Morgan said.

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