Key Morningstar Metrics for Rolls-Royce Holdings
- Fair Value Estimate: GBX 1,120
- Morningstar Rating: ★★★
- Morningstar Economic Moat Rating: Narrow
- Morningstar Uncertainty Rating: High
Rolls-Royce’s trading update confirmed full-year 2025 guidance, with the group targeting underlying operating profit of GBP 3.1 billion-GBP 3.2 billion and free cash flow of GBP 3.0 billion-GBP 3.1 billion.
Why it matters: Resilient demand supports revenue, while early operational efficiencies in civil aerospace—set to strengthen further as XWB engine durability upgrades roll through—help offset inflation and underpin operating margin and cash delivery.
- Civil aerospace demand remains strong, with new orders from IndiGo, Malaysia Airlines, and Avolon, and growing interest in the Trent XWB-97 engine. Large-engine flying hours rose 8% year on year to 109% of 2019 levels. Power systems’ growth is supported by rising data center and government demand.
- Defense demand remains robust, supported by the global combat aircraft program’s acceleration in power-and-propulsion work. The Project Pele military microreactor project with the US is progressing according to plan, and the sale of the naval propulsors business to Fairbanks Morse Defense was completed in July.
The bottom line: We maintain our fair value estimate of GBX 1,120 for Rolls-Royce, with shares fairly valued. Midterm revenue and operating margin growth are underpinned by large-engine flying hours running above 2019 levels, reflecting a persistent capacity gap that supports a structurally higher service revenue base.
- We expect EBIT to grow faster than revenue, with EBIT margin rising to 18% in 2028 from 14% in 2024 as XWB efficiency upgrades roll through 2026-27, extending time-on-wing, reducing the shop visit load, and improving long-term service profitability.
