Rolls-Royce (RR) share price forecast 2024: will the surge continue?

Rolls-Royce (LON: RR) share price was one of the best performers in the FTSE 100 index in 2023. The stock surged by more than 200% while the FTSE 100 and FTSE 250 indices were barely moved. The question is whether the shares have more room to run in 2023.

Rolls-Royce stock vs FTSE 100

Why did Rolls-Royce stock soar in 2023?

Rolls-Royce stock price surge started in September 2020 when it bottomed at 35.12p. The rally accelerated in 2023 as the new CEO, Tufan Erginbilgic, took over. In his leadership, he has aimed to focus on profitability by getting out of unprofitable businesses.

In November, the company announced that it would exit its electric flying business, which was part of the previous CEO’s sustainability aim. He has also boosted the company’s profit target to between £2.5 billion and £2.8 billion a year. 

The company’s surge is also based on key tailwinds in its business. First, the civil aviation industry staged a strong recovery in 2023 as most people restarted flying. Many airlines also made some substantial orders during the year. Just on Tuesday, EasyJet and Lufthansa made big orders from Airbus and Boeing.

The civil aviation business is crucial for Rolls-Royce, a company that makes most of its money in long-term service contracts. The division generates more than 50% of its total revenue and profitability.

Still, the biggest challenge for Rolls-Royce is that it focuses on wide-bodies airplanes after it exited the narrow body a few years ago. Most of the aviation orders this year were in the narrow body segment.

Second, Rolls-Royce shares jumped as the company took a strategic review of its operations. As part of this study, the company decided to stick with its three key divisions, including power. Some analysts were expecting it to exit its power business. Instead, the company will hold the division but lower its costs.

Third, the stock jumped as the company vowed to cut more costs. It is in the process of laying off 2,500 workers in addition to those it fired during the pandemic.

Finally, the rising geopolitical issues led to more demand for its defence business. Many governments, including in Europe, Asia, and Americas have placed more orders from the company. It is also benefiting from the AUKUS deal, which is creating products for the US, UK, and Australia.

Rolls-Royce share price outlook for 2024

Analysts are optimistic about Rolls-Royce prospects in 2024. For example, the company is on a path to regain its investment grade status by Fitch, one of the big 3 ratings agencies. That is an important move that would ease its access to cheaper capital.

Analysts at several institutions have also boosted their outlook for the company. Those at JP Morgan upgraded the stock to overweight and predicted that its stock could hit 400p in 2024. That is a big target that would imply a 37% upside from the current price.

Deutsche Bank also hiked their target for Rolls-Royce stock price to 400p from 310p while Barclays boosted its rating to 310p. 

There is a likelihood that the RR share price will continue rising in 2024 as interest rates start falling. If this happens, I suspect that the shares will reach a high of about 350p in 2024.

There are some headwinds that investors should know about. For example, the supply chain challenges in the civil aviation could continue during the year. Also, many investors may consider taking profits.