Rolls-Royce Shares (LON:RR) Gain New Bull as Turnaround Signals Confidence

Rolls-Royce shares (LON: RR) have been given a boost today, as RBC Capital initiates coverage with an “Outperform” rating, signaling a positive outlook for the aerospace and defence giant. The firm's 83.8% year-to-date performance reflects growing confidence in its strategic direction, yet the latest price target suggests further room to run.

The stock is being buoyed by RBC Capital's optimistic assessment, which includes a price target of 1,275 GBp. This endorsement is rooted in Rolls-Royce's demonstrable improvements in operational efficiency and strategic focus over the past several years.

UltraFan Program: A Key Growth Driver

A key driver of this positive sentiment is the advancement of Rolls-Royce's UltraFan engine program. The successful testing of the UltraFan technology demonstrator, reaching maximum power using 100% Sustainable Aviation Fuel (SAF) at its Derby facility, has been particularly well-received.

This milestone highlights the engine's potential to deliver a 10% efficiency improvement over the Trent XWB, already considered the world's most efficient large aero-engine. This represents a substantial 25% efficiency gain since the introduction of the initial Trent engine, positioning Rolls-Royce as a leader in sustainable aviation technology.

Rolls-Royce's commitment to future innovation includes plans to develop two UltraFan engine variants by 2028: the UltraFan 80 for widebody aircraft and the UltraFan 30 for single-aisle jets. Flight testing is projected to commence towards the end of the decade, providing a clear roadmap for the engine's integration into future aircraft designs. The potential for widespread adoption of the UltraFan engine is significant, given the aviation industry's increasing emphasis on fuel efficiency and reduced emissions.

Price Targets

The market's positive reaction to Rolls-Royce's achievements, especially the UltraFan engine's progress, underlines the growing confidence in the company's strategic direction. Trading 1.1% lower in today's London session, Rolls Royce shares are close to 10% down from recent highs, potentially setting up a decent entry if RBC's coverage proves close to the mark.