UBS trims Rolls-Royce price target but sees 18% upside as engine aftermarket stays tight Proactive uses images sourced from Shutterstock
UBS remains bullish on the aerospace engineer ahead of next month’s trading update, despite cutting its target on peer group derating.
UBS has reduced its price target on Rolls-Royce Holdings PLC (LSE:RR.) from 155p to 150p but retained its buy rating, with the bank arguing the shares offer around 18% upside from their current level of 1,278p.
The cut reflects a derating across UBS’s peer group rather than any deterioration in the company’s fundamental outlook, with the bank’s earnings forecasts for 2026 through 2028 virtually unchanged.
Ahead of Rolls-Royce’s first-quarter trading statement on 30 April, UBS does not expect the update to act as a meaningful catalyst for the stock either way, forecasting a straightforward reiteration of full-year 2026 guidance.
UBS flags that engine flight hours (EFH), a key metric for the civil aerospace aftermarket that drives lucrative long-term service revenues, are tracking slightly below prior expectations, running at around 108% of 2019 levels year-to-date, partly due to disruption from the Middle East conflict.
The bank has trimmed its EFH forecast to 115% of 2019 levels for 2026, from 118% previously, and models a 25 basis point margin headwind from 2028 onwards alongside a 1-2% reduction in aftermarket growth estimates.
Despite those adjustments, UBS continues to model £6 billion in earnings before interest and tax (EBIT) for 2028 and £5.1 billion in free cash flow, both within Rolls-Royce’s own guidance ranges.
UBS expects the trading statement to include positive commentary on Defence and Power Systems demand, potential contract wins, including a recent Bundeswehr announcement, and an update on progress with the company’s share buyback programme.