I’ve been watching broker forecasts for the Rolls-Royce Holdings (LSE: RR.) share price for a long time. And I’ve often had half a suspicion that all the analysts do every time it breaks new highs is just up their targets a bit.
And if that’s what they’ve been doing? Well, they’ve been right, haven’t they? So what do the experts say now?
Cracking results
Just look at that spike in the share price chart above. That was the result of Rolls-Royce smashing through 2024 expectations. On results day on 27 February, investors saw their dividends reinstated along with a new $1bn share buyback.
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CEO Tufan Erginbilgiç told us: “We now expect to deliver underlying operating profit and free cash flow within the target ranges set at our Capital Markets Day, two years earlier than planned.”
City analysts have no doubt been working hard on their spreadsheets to work out their new price targets. And some of them were quick enough to get them out on results day itself. Is that the result of super efficient modelling software calculations, or fingers in the air? However they do it, I expect shareholders will be happy with the overall outcome.
Rapid price upgrades
Most of the new ratings that have come out since the results are strongly positive.
As an example, we saw a renewed buy rating from JPMorgan. The previous target price of 655p has already been well beaten, and it’s now been lifted to 900p. Rolls shares have already peaked as high as 812p, and at the time of writing they’ve backed off a bit to a few pennies below the 800p level.
Deutsche Bank is also sticking with a Buy, putting a new price target on the stock of a 860p to replace the previous 630p. I wonder how long it might be before that needs to be adjusted again?
But, in a move that shows they’re not all just sheep following each other, Berenberg still reckons we should sell and expects the price to plunge to a measly 240p. That would be a 70% crash, and could drop the forecast price-to-earnings (P/E) as low as 10. Ouch!
What does it mean?
So, we see a wide range of opinions between analysts, just as there is among private investors. What does it mean and what should we do about it?
For one thing, I think just going with the broker consensus can be a mistake. They have different priorities and shorter-term goals than private investors. On the other hand, I’ve heard people say we should just ignore the experts’ opinions and work it all out for ourselves. And while I can appreciate the thought, I don’t think that’s the best approach either.
No, I think we can maximise our chances by listening to all opinions, then doing our own research on top and making up our minds that way. Every bit of information and opinion we can absorb can make us increasingly better investors, little by little.
