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Rolls-Royce share price rises as Morgan Stanley remains ‘overweight’

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Shares in Rolls-Royce Holdings (LON:RR) have climbed higher in today’s session as Morgan Stanley reaffirmed the British engine maker. Sharecast quoted the broker as commenting that improved cash flow quality is expected to result in an increased focus on its improving fundamentals over the next twelve to eighteen months.

As of 14:33 BST, the Rolls-Royce share price had climbed one percent higher at 916.88p, outperforming the broader UK market, with the benchmark FTSE 100 index currently standing 0.55 percent higher at 7,501.28 points. The group’s shares have added more than seven percent to their value over the past year, as compared with about a 1.4-percent gain in the Footsie.

Morgan Stanley ‘overweight’ on RR

Morgan Stanley reaffirmed Rolls-Royce as an ‘overweight’ today, with a price target of 1,100p on the shares. Sharecast quoted the broker as commenting that it believes that improving cash flow quality could drive a reappraisal of the group’s fundamentals. The broker further reckons that the engine maker’s growing installed base, rigorous cost discipline and operating leverage would drive FCF [free cash flow] growth ‘significantly ahead of peers’ post 2020.

“If Rolls-Royce achieves its mid-term targets, the stock could double on a five-year view,” they pointed out, as quoted by the newswire.

Looking out to the medium-term, the broker highlighted five positive drivers for the Rolls-Royce share price, including the widebody replacement cycle of older 747s and 767s, installed base gains, a higher share of maintenance revenues, pricing tailwinds and its improved operating leverage given its much smaller aftermarket base than peers.

Other analysts on engine maker

The 16 analysts offering 12-month price targets for the Rolls-Royce for the Financial Times have a median target of 1,077.50p, with a high estimate of 1,284.00p and a low estimate of 760.00p. As of April 19, the consensus forecast amongst 18 polled investment analysts covering the blue-chip engine maker advises investors to hold their position in the company.

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