Rolls-Royce stock jumps 15% as investors applaud financial turnaround: can it climb even higher?

Shares in Rolls-Royce (RR) surged more than 15% at the start of trading, as investors welcomed the UK engineering giant’s financial revival.

The stock jumped to 735p per share, marking a strong vote of confidence in the company’s transformation under chief executive Tufan Erginbilgiç.

For the first time since the COVID-19 pandemic severely impacted its business, Rolls-Royce is resuming dividend payments, offering 6.0p per share to investors.

The company has also announced a £1bn share buyback scheme, which speaks of its robust financial health.

Rolls-Royce earnings: profits surge as turnaround accelerates

Rolls-Royce’s financial performance in 2024 was significantly stronger than the previous year.

Underlying operating profit jumped over 50% to £2.5bn, up from £1.6bn in 2023, underscoring the success of the company’s turnaround strategy.

Erginbilgiç, who has spearheaded cost-cutting and efficiency measures since taking the helm in 2023, said the company is now “a high-performing, competitive, resilient, and growing business.”

He added that all core divisions had delivered improved results despite persistent supply chain challenges.

We are moving with pace and intensity. Based on our 2025 guidance, 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

“Significantly improved performance and a stronger balance sheet give us the confidence to reinstate shareholder dividends and announce a £1bn share buyback in 2025,” Erginbilgiç added.

Military orders and aviation boom fuel RR stock

The reinstatement of dividends and the buyback program mark a striking turnaround from the depths of the pandemic when Rolls-Royce was forced to suspend payouts in April 2020 as global travel came to a halt.

The crisis sent its share price tumbling below 40p in October 2020, but it has since staged a remarkable recovery.

Last night, Rolls-Royce shares closed at 631p, having reached a record high earlier this month.

The company has been one of the top performers in the FTSE 100, with its stock price soaring nearly sixfold over the past two years.

According to analysts, the resurgence of Rolls-Royce has been fuelled by multiple factors, including cost-cutting measures, renegotiation of contracts, and increased demand in civil aviation and defense.

The company has reported record-breaking orders for its defense division, bolstered by growing military tensions worldwide.

Additionally, engine-flying hours—an important revenue driver—have surpassed pre-pandemic levels, contributing to revenue growth. Aarin Chiekrie, equity analyst at Hargreaves Lansdown, said,

The group’s turnaround has been so impressive that some of its 2027 guidance has been hit two years early, causing the group to upgrade its mid-term guidance.

Financial analysts see further upside potential for Rolls-Royce’s stock, given its strong technical performance as well.

Crispus Nyaga, an analyst at Invezz, noted in a report that the stock has been in an ascending channel over the last few years, and remains above key moving averages, indicating continued bullish sentiment.

Rolls-Royce stock: risks remain amid strong momentum

Despite the positive outlook, Nyaga also warns of potential risks.

“For one, there are signs that the stock is forming a bearish divergence pattern as the Relative Strength Index (RSI) and the percentage price oscillator have retreated. Therefore, while the general view for the stock is bullish, there is a risk that it will pull back, even to the psychological level of 500p,” he said.

However, with civil aviation booming and the company’s restructuring efforts yielding strong results, investors remain optimistic about Rolls-Royce’s long-term growth.

The company’s ability to sustain profitability and cash flow will be crucial in determining whether its stock continues its upward trajectory.£

(£1=$1.26374)

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