Citi raised Rolls-Royce's price target to 1,647p from 1,101p, a 50 percent increase, after upgrading long-term profit and cash flow forecasts by 30-40 percent. The broker maintained a neutral rating, citing limited upside after recent share price appreciation. Power Systems emerged as the most influential driver of value, surpassing Civil Aerospace.
Citi raised its price target on Rolls-Royce Holdings to 1,647p from 1,101p, a 50 percent increase, after upgrading long-term profit forecasts by 30-40 percent.
"However, recent share price appreciation leaves insufficient upside to upgrade to buy, and we maintain our neutral rating," Citi said.
The forecast changes reflect improved expectations across all of Rolls-Royce's divisions, with Power Systems providing the biggest contribution to the revisions. Citi also raised forecasts for Civil Aerospace but was more cautious on Defence, arguing that record first-half margins were unlikely to be sustainable over the longer term.
The 1,647p target implies roughly 5 percent upside from the current price of 1,564.60p, where shares traded up 1.5 percent at 1100 BST on Monday. Citi's sensitivity analysis now identifies Power Systems as the most influential driver of Rolls-Royce's valuation, surpassing Civil Aerospace.
The upgrade follows "very strong" first-half results from the London-listed aerospace and defence group. Power Systems, which makes engines for marine, industrial and energy applications, emerged as the key value driver in Citi's revised model, while the civil aerospace recovery continues to support earnings growth.
Rolls-Royce shares have rallied in recent months, with the stock trading near record levels. The FTSE 100 constituent's rerating has been driven by improving fundamentals across its civil aerospace recovery, defence order book and power systems growth.
The broker's decision to maintain a neutral rating despite the substantial target increase reflects the extent of the recent share price appreciation. At current levels, the stock already prices in much of the improved earnings outlook that Citi's revised forecasts capture.
The target price increase reflects Citi's growing confidence in Rolls-Royce's long-term earnings power, particularly from Power Systems. Investors will watch for further broker updates and any management guidance on full-year performance following the first-half results.
This article is for informational purposes only and does not constitute investment advice.
