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Rolls-Royce (LSE:RR.) shares continues to capture investors’ attention as its remarkable turnaround story enters a new phase. The shares last closed at 1,072p, up more than 1,000% from its lows in 2022, but analyst sentiment appears somewhat mixed despite the operational progress.
Consensus forecast
According to the latest consensus, City analysts rate the stock as Outperform — this suggests the stock will beat the market. Out of 16 analysts, nine have a Buy’ rating, two suggest Outperform, four recommend holding, and one maintains a Sell.
The average price target currently stands at 1,021p. This is about 4.7% below the current share price. Targets vary widely, from a low of 240p to a high of 1,440p.
Notably, both Citi and JPMorgan revised their targets upward on 11 August 2025, following the group’s strong H1 results. It’s possible that more analysts may follow suit in the coming weeks as they digest the implications of improving profitability, cash flow, and deleveraging.
The valuation
The statutory numbers reflect an extraordinary transformation. From around £6bn in 2022, the market cap has surged to nearly £90bn today. Meanwhile, EBIT has recovered from deep losses in 2020-22 to a projected £3.05bn this year, while net income is forecast to hit £1.9bn.
What’s more, leverage has turned into a net cash position — a major achievement for a company once wobbling under heavy debt. This net cash position is expected to accelerate towards £7bn by 2027, potentially funding new projects or maybe more share buybacks.
Valuation multiples tell a mixed story. At first glance, it certainly looks like a premium valuation. The forward price-to-earnings ratio also climbs to 44 times, moderating to 31.8 times by 2027.
Some companies deserve a premium valuation
Of course, valuations are relative. As such, these figures must be assessed against Rolls-Royce’s formidable competitive moat. As one of just a handful of firms capable of producing wide-body aircraft engines, the company benefits from high regulatory, capital, and technical barriers to entry — a position arguably stronger than that of GE Aerospace, which trades at similar or higher multiples. These barriers are also present in other areas of operation, including defence and nuclear systems.
That said, risks remain. A global slowdown in aircraft deliveries or defence spending could hit future earnings. Moreover, any stumbles in executing its long-term strategy or returning to dividend growth could dent sentiment. What’s more, while recent improvements are encouraging, the stock’s valuation does leave little room for disappointment.
For now, I’m simply holding my shares but that’s partly due to concentration risk. Rolls-Royce looks expensive on paper, but I still believe it’s worth considering by investors with patience and conviction. After all, it’s a great business with strategic position, operational momentum, and improving returns.
