Shares of Rolls-Royce skyrocket, boosting shareholders by an impressive 149%
Rolls-Royce has been among the biggest winners in the FTSE 100 index this year, with its shares nearly doubling since the start of 2025. The automotive and aerospace giant's impressive performance can be attributed to a strong corporate turnaround, robust financial results, strategic business growth, and promising future projects like small modular reactors (SMRs).
The company reported a 50% increase in underlying operating profit to £1.7 billion in H1 2025, with an improved operating margin of 19.1% and revenue growth of 10.8% to £9.06 billion. Free cash flow hit £1.58 billion, backed by solid long-term service agreements (LTSAs).
Under the leadership of CEO Tufan Erginbilgic, Rolls-Royce has undergone a strategic business transformation. The company has successfully restructured operations, improved cost discipline, and expanded earnings potential especially in Civil Aerospace and Power Systems.
One of the high-growth potential projects that Rolls-Royce is currently focusing on is the development of SMRs. The company has been selected as the sole provider for the UK’s first small modular reactor program, expected to be profitable and cash flow positive by 2030.
Rolls-Royce's impressive performance has not gone unnoticed, with S&P upgrading its credit rating from "BBB" to "BBB+" with a stable outlook. UBS analyst Ian Douglas-Pennant has also increased his forecasts for Rolls-Royce's free cash flow in 2028 and raised his price target for the stock from 1,075 to 1,375 pence.
Analyst sentiment is broadly positive but tempered by high valuation and the long-term nature of some growth drivers. The company's forward price-to-earnings (P/E) ratio around 36 suggests much growth is already priced in, reflecting expectations for continued success but also elevated risk. Dividend yield remains low, with some returns via share buybacks rather than cash dividends.
For investors looking to diversify, the European Defence Index, which features 20 leading European defense stocks, is an attractive option. The index was designed by DER AKTIONÄR in response to the ongoing defense boom.
On Thursday, Rolls-Royce shares closed up 1.9 percent at just over 1,100 pence, reaching a new all-time high of 1,111.50 pence. While some investors have recently taken profits, the stock's strong performance and promising future prospects suggest that Rolls-Royce is a company to watch in the coming years.
[1] Rolls-Royce reports H1 2025 results: https://www.rolls-royce.com/investors/financial-reports/h1-2025-results.aspx [2] Rolls-Royce share price: https://www.google.com/finance?q=LON:RR [3] Rolls-Royce SMR project: https://www.rolls-royce.com/products-and-services/power-systems/small-modular-reactors.aspx [4] Rolls-Royce dividend policy: https://www.rolls-royce.com/investors/dividends.aspx
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