Rolls-Royce Shares Rally Following Jefferies Upgrade

Rolls-Royce (LON: RR.) shares jumped at the start of the year after the stock was upgraded to Buy from Hold at Jefferies.

The British luxury car and aero-engine manufacturing business' shares are up more than 5% at the time of writing, trading around the 97.89p mark. The rise adds to its recent gains over the last three months, rising from below 65p per share.

Jefferies analyst Chloe Lemarie lifted the firm's rating on the stock and its price target to 125p from 90p per share.

Lemarie stated in a note to clients that the firm sees several positive catalysts for the group in 2023, including potential credit upgrades and further flight hours recovery, which should build confidence in Rolls-Royce's mid-term potential.

“As we look to 2023, we are more risk-on and warm to aftermarket momentum,” said Jefferies.

In addition, the firm believes Rolls-Royce will gain significantly from the reopening in China.

Last week, Rolls-Royce outgoing Chief Executive Warren East told the BBC in his last interview before he departed the company that he believes long-haul aviation will hit pre-pandemic levels by 2024.

He added that much of Rolls-Royce's Chinese business is domestic travel and the news from China regarding a further easing of restrictions was “very encouraging.”

Furthermore, at the end of November, Rolls-Royce was initiated with an Overweight rating at Barclays. Analyst Charlotte Keyworth assigned the stock a 110p price target, explaining that she sees positive catalysts from an engine flight-hour recovery and expectations of rising Chinese demand once COVID restrictions are lifted. In addition, Keyworth said negative sentiment on widebody aircraft is troughing.

According to TipRanks, out of nine analysts, four have assigned RR a Buy rating, with three at Hold and two at Sell. The average price target is 104.55p, representing a potential 6% upside from the current price of 98.63p.