Rolls-Royce Holdings PLC (LSE:RR.) (LSE:RR.) is being tipped by JP Morgan to outperform over the next few months as earnings forecasts nudge up and the aero-engine group sells its ITP Aero business.
JPM acknowledges there are structural challenges - such as the future of long haul flights - but has raised its share price target to 130p from 105p, while its earnings forecasts over the next three years jump by 49%, 31% and 25% respectively but these might be too cautious, it adds.
The US bank says underlying profits in Rolls-Royce’s first half were £536m better than consensus, suggesting the benefits of the cost-cutting programme are starting to show through.
JPM believes free cash flow can reach £750mln in 2023, while the disposal of ITP Aero might also bring a pleasant surprise as prices of other similar businesses sold recently have achieved substantial premiums to estimates.
JPM is assuming a disposal price of £1.4bn for ITP, but believes a higher sum is possible.
Shares rose 0.3% to 110p.