Rolls-Royce Holdings plc (RYCEY) continues to make significant progress in its development programs and forge multinational agreements. With its ambitious expansion efforts, let's explore whether investors should buy, sell, or hold the stock.
Headquartered in London, the United Kingdom, RYCEY designs and supplies power and propulsion solutions for critical applications in air, sea, and land. It operates in 50+ countries, serving customers in 150+ countries. The company's segments include Civil Aerospace; Defence; Power Systems; and New Markets.
Yesterday, RYCEY shared an update on the development of its Pearl 10X engine program, which is making significant progress, having achieved over 1,500 testing hours on both the Advance 2 demonstrator and the Pearl 10X engine configuration.
The fact that a prominent French aircraft manufacturer had chosen the Pearl 10X for its latest high-end product reaffirms RYCEY’s status as the preferred engine manufacturer in the business aviation sector.
Additionally, on March 13, the company announced that Rolls-Royce Submarines Ltd, as part of the AUKUS trilateral agreement involving Australia, the United Kingdom, and the United States, would supply reactors for Australia's nuclear-powered submarines.
This venture is expected to open up new market opportunities and enhance RYCEY's position as a leading provider of power and propulsion solutions, ultimately driving revenue growth and profitability. Shares of RYCEY have gained 76.2% over the past six months to close its last trading session at $1.85.
Let us delve into additional factors that could affect RYCEY’s performance in the near future.
Robust Financials
For the year that ended December 31, 2022, RYCEY’s revenue increased 20.5% year-over-year to £13.52 million ($16.72 million). Its gross profit grew 29.1% from the year-ago value to £2.76 million ($3.41 million). Also, the company’s operating profit rose 63.2% from the prior year to £837 million ($1.04 million), while profit before financing and taxation rose 61.4% year-over-year to £918 million ($1.14 million).
Favorable Analyst Estimates
Analysts expect RYCEY’s revenue to increase 13.9% year-over-year to $17.38 billion for the fiscal year ending December 2023. The company’s EPS for the current year is expected to rise 173.4% from the previous year to $0.06.
Moreover, RYCEY’s revenue and EPS for the next fiscal year ending December 2024 are expected to grow 6.7% and 43.5% from the prior year to $18.55 billion and $0.09, respectively.
Discounted Valuation
In terms of forward non-GAAP PEG, RYCEY is trading at 0.58x, 62.5% lower than the industry average of 1.55x. The stock’s forward EV/Sales of 1.15x is 28.9% lower than the industry average of 1.62x. Also, its forward EV/EBITDA of 8.92x compares with the 10.44x industry average.
Furthermore, RYCEY’s forward Price/Sales multiple of 0.91 compares with the industry average of 1.30. Its forward Price/Cash Flow of 4.42x is 64.2% lower than the 12.36x industry average.
Solid Growth Record
Over the past five years, RYCEY experienced a steady growth trajectory, with its EBITDA growing at a 5.4% CAGR. The company's EBIT increased at an impressive CAGR of 11.2%, indicating strong operational performance. Additionally, RYCEY's levered cash flow experienced a modest CAGR of 1.3%, signifying stable cash flow.
POWR Ratings Show Promise
RYCEY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. RYCEY has a B grade for Value, consistent with its lower-than-industry valuation. It also has a B grade for Growth, in sync with its stable growth record.
RYCEY is ranked #22 in the 58-stock Auto & Vehicle Manufacturers industry. Click here to access RYCEY’s Stability, Momentum, Quality, and Sentiment ratings.
View all the top stocks in the Auto & Vehicle Manufacturers industry here.
Bottom Line
RYCEY's progress in the Pearl 10X engine program, along with its selection by a prominent French aircraft manufacturer, reinforces its position as the preferred engine manufacturer in business aviation. Moreover, supplying reactors for Australia's nuclear-powered submarines should open new market opportunities for RYCEY.
Furthermore, with its robust financial performance, proven track record of steady growth, and positive analyst sentiments, RYCEY could be an ideal stock to buy now.
How Does Rolls-Royce Holdings plc (RYCEY) Stack Up Against Its Peers?
While RYCEY has an overall POWR Rating of B, equating to Buy, one could also check out other stocks within the Auto & Vehicle Manufacturers industry that are overall A (Strong Buy) rated: Mercedes-Benz Group AG (MBGAF), Honda Motor Co. Ltd. (HMC), and Suzuki Motor Corp. (SZKMY).
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RYCEY shares were trading at $1.78 per share on Wednesday afternoon, down $0.08 (-4.05%). Year-to-date, RYCEY has gained 66.36%, versus a 7.77% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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