Shares with profit propulsion

Rising optimism for interest rate cuts has driven a mini valuation rerating of stocks and should important US inflation data releases paint an improving picture, this will be supportive for markets. Companies’ performance fundamentals matter, too, when it comes to sustaining share price momentum: if the macro data continues to get better, then shares in businesses whose earnings prospects analysts are bullish on could maintain an upward trajectory.

Rolls-Royce (RR.) is now rated on 26 times analysts’ next 12 months’ forward earnings estimates, as it maintains a strong share price run, being up 39 per cent over the last three months. Well received cost rationalisation and operational reforms combine with a strengthening of the “soft landing” narrative for developed world economies, which is bullish for the end markets of the civil aerospace business. Crucially, the upgrade momentum for analysts’ earnings forecasts has been strong for the current (FY2024) and next financial years, so fundamental-based optimism has yet to be out-run by raw animal spirits.  Although the valuation multiple has expanded slightly from when we last ran this screen, that can partly be attributed to the improved sentiment on interest rates altering the market’s perspective. One thing that is worth noting, however, is the share price is now within five per cent of the mean target price implied by broker ratings compiled by FactSet.