(Sharecast News) – Bank of America Merrill Lynch hiked its price target on engine maker Rolls-Royce on Thursday to 260p from 190p after results a day earlier.
“After three years of depressed earnings the widebody recovery is on track, strongly supporting Rolls free cash flow generation,” the bank said.
“As FCF improves we believe that the Rolls balance sheet becomes less of a concern, with metrics moving in the right direction for a rating upgrade through 2024.”
BofA ML said it sees “significant” room for cost-cutting in Power Systems, as well as upside in Defence and Civil Aero.
“With better cost management and flight hour tailwinds we see more than 900 basis points of Civil margin expansion through 2026 (versus 2022) supporting circa £1.9bn of free cash flow in 2026.
“As a result, we raise our target free cash flow multiple from 10x to 13x and our price objective moves to 260p.”