Rolls Royce Shares End Week With Further Highs, Analyst Downgrades To Hold

Rolls-Royce shares (LON:RR) have ended another week of trading, with yet further highs, as the rally which has seen the RR share price double in 12 months rolls on. Breaking 950p, and adding 6.84% on the week, continues a remarkably bullish period for the shares.

But after such a dramatic run that has seen RR add 870% in 5 years, it's worth questioning if the Rolls-Royce rally can continue, or if a correction may be on the horizon?

The financial results speak for themselves. In February 2025, Rolls-Royce reported an underlying profit of £2.5 billion, exceeding market forecasts and setting up the next leg of the rally. The reinstatement of dividends and the announcement of a £1 billion share buyback program further solidified investor confidence, signalling a return to financial health and a commitment to shareholder value.

The trading update in May was also well received. Guidance of between £2.7B-£2.9B of underlying profit and free cash flow for 2025 was reaffirmed, said to be driven by strategic initiatives, and strong demand.

Beyond civil aerospace, Rolls-Royce’s defence sector is proving to be a significant growth driver. The company secured a record £9 billion contract earlier in the year with the UK Ministry of Defence for nuclear reactors for the Royal Navy's submarine fleet. This long-term deal not only provides a stable revenue stream but also creates over 1,000 new jobs and safeguards 4,000 existing ones, underscoring the company’s importance to the UK economy.

Another 5 year support contract worth £563million with the MOD to maintain and service the EJ200 Typhoon aircraft is also expect to support 200 jobs. This, alongside the delivery of the first AE 3007N engine to Boeing for the MQ-25 set's the firm up well in a sector that is currently buoyed by the NATO meeting, and the 5% GDP spending target on defence being agreed.

Analysts have largely responded positively to Rolls-Royce's resurgence. In the past couple of weeks, JPMorgan reaffirmed their “Overweight” rating on the stock, setting a target price of 1,040p, reflecting confidence in the company's strategic direction and financial health. Deutsche Bank also raised their price target to 935p (from 860p), whilst maintaining a Buy rating.

However, some previously bullish analysts have erred when it comes to the current valuation. On Thursday (26th), Kelpler Cheuvreux downgraded their rating from a Buy to Hold, whilst keeping their 952p price target in tact. The firm highlighted a key risk: valuation, with the market possibly having priced in much of the expected future growth.

Periods of price discovery, such as RR finds itself currently can be volatile, with no previous levels of support or resistance to provide buffers. The next big psychological barrier should bullish sentiment continue to hold would be 1,000p. The 900p level to the downside had provided some friction in recent weeks, and could provide some support if sentiment shifts.