The Rolls-Royce (LSE: RR) share price has been a thing of beauty since the dark days of the global pandemic. We’re looking at a more than 10 times rise in a little over four years!
During the pandemic crash in early 2020, when many stocks dropped 40%+ within weeks, I toyed with the idea of buying multiple shares across sectors that were getting clobbered. I thought of airlines, hotels, oil, and anything linked to people travelling.
In the end, I didn’t, and it turned out to be a missed opportunity. Looking back at the best-performing FTSE 100 stocks over the past three years, the trend of post-pandemic travel recovery is strikingly evident.
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| Three-year return | |
|---|---|
| Rolls Royce Holdings | +420% |
| 3i Group | +154% |
| International Consolidated Airlines Group (IAG) | +133% |
| Standard Chartered | +128% |
| InterContinental Hotels Group (IHG) | +124% |
We’ve got British Airways owner IAG, hotel giant IHG, and the standout winner, engine maker Rolls-Royce. Unfortunately, I only invested in the latter when the market had already cottoned on to the turnaround story unfolding.
The stock’s now at 581p, not far off a record high. Here, I’ll look at the latest 2025 forecasts for Rolls-Royce’s share price and its restored dividend, as well as the valuation. This will help me decide whether to buy any more shares.
Share price forecast
Brokers are currently bullish on Rolls shares, with 10 out of 13 rating the stock as a Buy or Strong Buy. Only one reckons it’s a Sell, while two have a Hold rating.
As usual, there’s a wide spread of opinion on where the share price could go over the next 12 months. One analyst team thinks it could fall 58%, while another sees it reaching 850p (46% higher).
The consensus price target is 609p — just 5% above the current level.
Share price targets can’t be relied upon, of course. They just give a snapshot of where analyst opinion lies.
Right now, the market seems fully up to date with goings-on at the company. And the stock is currently at the same price it was two months ago.
Dividend forecast
In August, the firm announced that the dividend was coming back. It will start at a 30% payout ratio of underlying profit after tax, rising to 30%-40% each year afterwards.
The dividend forecast for next year is 6.28p per share. Based on the current price, that’s a yield of 1.1%. Not exactly heart-pumping stuff, but the payout has to resume somewhere.
Valuation
Next year, analysts are expecting earnings per share (EPS) of 21p. That puts the stock on a forward price-to-earnings (P/E) multiple of 27.5.
I don’t think that’s massively overvalued. But it also doesn’t leave much margin of safety for investors buying the stock today — it appears priced for perfection.
However, we know that the supply chain situation is far from perfect today. British Airways has already cut long-haul flights this year due to delays in the delivery of engines and parts from Rolls-Royce. Earlier this month, the airline cancelled more summer flights from London’s Heathrow to Abu Dhabi.
If Rolls-Royce reports worsening supply chain issues, it could trigger a fair bit of market turbulence. It’s been a while since the firm delivered bad news.
As thing stand, I’m happy to hold my shares. The firm is due to report its full-year earnings in February. I’ll wait until then before deciding whether to buy more shares.
