Key Stats for Rolls-Royce Stock
- 1- Year Price Change for Rolls-Royce stock: 120%
- $RR Share Price as of Jan. 8: £12.73
- 52-Week High: £12.87
- $RR Share Price Target: £12.16
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What Happened?
Rolls-Royce (RR) stock has been on an absolute tear, hitting fresh record highs in virtually every trading session so far in 2026. The aerospace and defense giant has surged nearly 1,200% over the past five years, driven by a remarkable transformation story that CEO Tufan Erginbilgic calls “Rolls-Royce 3.0.”
The rally reflects multiple growth engines firing simultaneously. While defense exposure has captured headlines amid rising geopolitical tensions, the company’s defense business accounts for only about 25% of underlying revenue and was flat year-over-year in the most recent half-year results. The real outperformance is coming from two other areas that investors may be underappreciating.
First, the Power Systems segment has become a profit machine. Operating margins in Power Generation have increased 11-fold since 2022 as the company restructured its business model to profitably capture data center growth.
Order intake in data centers jumped 85% year-over-year, with demand for backup power generators remaining “very strong.” Management now expects Power Generation revenue to grow around 20% annually through 2028, up from prior guidance of 15-17%.
Second, the Civil Aerospace business is executing a multi-year turnaround that’s driving massive margin expansion.
Operating margins in Civil hit 24.9% in H1 2025, up 7.1 percentage points year-over-year. This was driven by improved aftermarket performance, contractual margin improvements from renegotiating onerous contracts, and critical time-on-wing milestones on the Trent XWB-84 engine.
UBS analyst Ian Douglas-Pennant recently hiked his price target on Rolls-Royce stock to £16.25 from £13.50, citing upgraded expectations for power generation growth. He now sees profitability in the power business, potentially increasing 60% by 2028, driven by accretive data center sales.
The massive Rolls-Royce stock rally over the past five years has left it trading at a premium. Given our valuation model, the manufacturing giant is expected to deliver negative returns over the next two years, assuming a forward earnings ratio of 30x.
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What the Market Is Telling Us About Rolls-Royce Stock
The market is rewarding Rolls-Royce stock for disciplined execution on a transformation plan that’s delivering measurable results.
The company raised full-year 2025 guidance for operating profit to £3.1-3.2 billion and free cash flow to £3.0-3.1 billion. Management also reaffirmed confidence in 2028 mid-term targets and emphasized these are “a milestone, not a destination.”
What’s impressive is the company’s ability to expand margins despite industry-wide supply chain constraints and tariff headwinds. CEO Erginbilgic noted that supply chain challenges have been fully mitigated across the group through proactive management, demonstrating the company’s increased agility.
Capital returns are also accelerating. Rolls-Royce declared an interim dividend and is halfway through a £1 billion share buyback program. Total cash distributions to shareholders in 2025 will reach £1.9 billion, marking the first significant shareholder returns in over five years.
One concern investors should monitor is valuation. With a forward P/E ratio above 42x, Rolls-Royce stock trades at a premium to most peers. However, the transformation is real and measurable, with return on capital rising to 16.9% from low single digits just three years ago.
Investors will closely watch full-year results slated for February 26 and monitor progress on the company’s emerging small modular reactor business, which received UK government backing in June and is expected to be profitable and cash flow positive by 2030.
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How Much Upside Does Rolls-Royce Stock Have From Here?
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!
