Rolls-Royce share price could come back to earth soon – analyst warns

Rolls-Royce (LON: RR) share price meteoric rise accelerated on Thursday after the company published strong financial results. It soared to a six-year high of 369p as it neared the important target I predicted earlier this week. 

Rolls-Royce Holdings published strong financial results as it capped the first year under Tufan Erginbilgic, the former BP executive.

The company’s earnings came in hotter than expected and its cash pile soared. Its total revenue surged to £15.4 billion while its operating profit rose to ​​£1.59 billion. Its total profit before tax surged to over £1.2 billion.

This performance was stronger than expected and the management believes that it has more upside this year as its key industries continues booming. The civil aviation business, defense, and power are expected to do well.

Most importantly, Rolls-Royce has paid some of its debt and grown its cash pile as the free cash flow jumped by 150% to £1.3 billion. As I have written before, FCF is probably one of the most important numbers in a company because it refers to the cash left after doing everything. The CEO said:

It is worth noting that Rolls-Royce Holdings is not the only industrial giant that is soaring. General Electric, a major competitor, has also taken to the skies as its stock jumped to over $150, its highest point in years. It has risen by over 354% from its lowest level in 2020.

Rolls-Royce vs GE stocks

Not everyone is cheering the strong performance of the Rolls-Royce share price. While 20 analysts tracked by Bloomberg have a bullish outlook for the company, one of them has taken a contrarian view.

In a note, an analyst at Berenberg warned that this meteoric rise could end soon and bring the stock down to earth.

He argues that the company lacks a clear catalyst going forward and that its valuation is no longer cheap. He said:

The analyst also cautioned that the lack of a dividend makes it less attractive. In a statement, the company said that it would continue accumulating cash and paying back some of its debt before starting to make its dividend payments.

Still, from a technical perspective, I believe that the stock has more upside now that it remains above the 50-day and 100-day moving averages. It also has the momentum considering that the management is executing well.

Also, the Rolls Royce share price will likely do well as investors anticipate the start of dividends later this year or in 2025.

The post Rolls-Royce share price could come back to earth soon - analyst warns appeared first on Invezz