Rolls-Royce rating gets the chop over at Bernstein
Aerospace and defence giant Rolls-Royce has been cut to ‘underperform’ from ‘market perform’ at Bernstein who cited "emerging challenges" in two of the company’s divisions.
Aerospace and Defence
10,597.35
17:09 25/04/24
FTSE 100
8,078.86
17:14 25/04/24
FTSE 350
4,434.34
17:09 25/04/24
FTSE All-Share
4,387.94
16:49 25/04/24
Rolls-Royce Holdings
405.70p
17:15 25/04/24
“We believe the emerging challenges in ‘Civil Aerospace’ and Land & Sea (divisions) will not support the current valuation. The recent strength in share price performance does not reflect improving fundamentals of key areas of risk in the company, in our view,” said Bernstein.
The broker noted that the stock price has increased 10% year-to-date and has outperformed the FTSE 100 by 7%, largely on the back of improving FX and sentiment for commercial aerospace stocks.
“We think the operational performance in H2 2014 highlights the beginning of what we see as a challenging period ahead for earnings and free cash flow,” added Bernstein.
Additionally, Bernstein added that end-market pressures will reduce sales growth and margin expansion in the ‘Land & Sea’ businesses.
Bernstein adjusts its target price on the stock upwards to 844p from 805p “using a relative Enterprise Value/EBITDA multiple of 75%”.