- Sentiment still warm towards Rolls Royce
- Travel is a theme through the screen results
Rolls-Royce (RR.) was one of the stock market stories of 2023 and over the most recent three months the shares are up 41 per cent. The danger with any such strong story is that animal spirits could have taken over and the froth of optimism overruns fundamental justification for the higher share price. Earnings upgrades over the past year have been driven by a combination of recovery in the end markets for its civil aerospace arm’s large engines since the Covid-19 pandemic, alongside enthusiasm for the CEO’s cost rationalisation and efficiency drive. According to FactSet data eight of fifteen estimates surveyed were up on a brokers’ previous assessment, with two now lower.
Furthermore, the actual positions being informed by those ratings are overwhelmingly ‘buys’ or ‘overweights’ with only a few ‘holds’. However, as a cautionary note, the buoyant mood should be tempered by considerations such as how the business manages its working capital requirements and liabilities under existing contracts going forward.
Our US screen is topped by travel technology group Expedia (US:EXPE), which analysts expect to post double-digit earnings growth in the current and next financial years. It is also notable that streaming and entertainment platform Netflix (US:NFLX), which has fallen away from being included in acronyms and phrases to describe America’s titan tech stocks. It is, however, expected to accelerate earnings growth over the next two financial years, albeit the valuation of almost 30 times forward twelve months’ earnings isn’t cheap.
In the UK mid-cap space, train and bus operator FirstGroup (FGP) has seen its slicker operational performance and commitment to returning cash backed by investors. However, the impressive earnings upgrades still forecast by analysts may yet be revised depending on expectations for transport policy should (as current polls suggest) the UK elect a Labour government later in the year.
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