Goldman Sachs Initiates Rolls-Royce with Buy, Citing Strong Cash Flow Outlook

In a note to clients at the end of last week, analysts at Goldman Sachs initiated coverage of Rolls-Royce (LON: RR.) with a Buy rating and a 1,290 pence price target, highlighting the company’s turnaround and strengthening cash generation prospects.

Analyst Sam Burgess said the European aerospace market is emerging from a period of volatility, with travel demand outstripping supply. 

Goldman is positive on the engine aftermarket and sees Rolls-Royce as well placed to deliver “significant near-term capital returns.”

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The bank pointed to the company’s progress over the past three years, which has transformed Rolls-Royce into a leaner, more cash-generative business with a stronger balance sheet and a reinstated dividend.

 While much of the recovery is already reflected in the share price, Goldman said the next phase of growth is underpinned by improvements in engine efficiency, a favourable shift in long-term service agreement pricing, and strong expansion in the Power Systems division.

The analysts forecast free cash flow of about £4.9 billion in 2028, ahead of Rolls-Royce’s own guidance of £4.2 billion to £4.5 billion. 

That outlook, coupled with continued consensus earnings upgrades, supports Goldman’s target, which implies roughly 14% upside potential from Thursday’s close.

Rolls-Royce trades on about 28 times forward earnings, and according to Goldman, it reflects investor optimism but still leaves room for further re-rating. 

“Rolls-Royce has executed a compelling operational turnaround,” the analysts wrote, adding that the company’s mix of structural efficiency gains and market tailwinds makes it one of the most attractive names in European aerospace.