Rolls-Royce (LON: RR) share price had another strong performance in the first quarter of 2024. The stock surged by almost 40% during the quarter as it jumped to its highest level since January 2014. It outperformed the FTSE 100, FTSE 250 indices and other industrial companies during the quarter.
Analysts are bullish on Rolls RoyceNotably, Rolls-Royce stock has jumped in the past five straight months, a record winning streak. This performance accelerated after the company published strong financial results and robust forward guidance.
The company expects that it will generate between £2.5 billion and £2.8 billion in operating profit by 2027. It also sees its operating margin rising to between 13% and 15% while its free cash flow will be between £2.8 billion and £3.1 billion.
These estimates are notable compared to what the company made in 2023. Its operating profit stood at £1.6 billion while the operating margin was 10.3%. It has a free cash flow of £1.3 billion.
These numbers mean that the company expects substantial growth and cost savings in the next few years. As part of this, the company plans to exit its non-core businesses such as its ambitious electric planes division.
Also, it aims to focus on partnerships in key areas such as the narrowbody engine, small nuclear reactors, power generation, and battery storage. By doing partnerships, the company will avoid the huge capital investments that were planned by Warren East, the former CEO.
Meanwhile, the company is working to improve its balance sheet by reducing its debt. This explains why Fitch, a leading rating agency boosted the company’s credit rating from BBB- to BBB+. The agency noted that:
“Given the significant operational restructuring that Rolls-Royce has undergone and improving market conditions, we forecast financial metrics to continue to be strong for its rating.”
The City analysts have welcomed the ongoing transformation at Rolls-Royce. Those at Deutsche Bank have a buy rating on the stock. Similarly, analysts at Barclays, UBS, Goldman Sachs, Deutsche Bank, and Jefferies have all boosted their buy ratings of the stock.
Rolls-Royce share price analysis
I have also been quite bullish on the Rolls-Royce share price for a while, as you can read here and here. In all these articles, I predicted that the stock would jump to 443.3p. This forecast was accurate as the stock is nearing this target.
Therefore, given the recent surge and the significance of the 443.3p level, there is a need for caution. In most cases, financial assets tend to either retreat or consolidate after rising to an important level of resistance.
As such, while the long-term view for the Rolls-Royce stock is bullish, a short pullback cannot be ruled out as many investors take profits. More gains will be confirmed if the stock flies above the resistance at 443.3p.
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