By Chetan
Rolls-Royce (LSE: RR.) shares have dropped sharply, falling 19% to around 1,100p today from their early March high of 1,363p. The decline has wiped billions off the company’s market value and raised fresh questions among investors. But despite the steep fall, analysts are not backing away. In fact, some of the biggest names on Wall Street are doubling down on their bullish stance.
Goldman Sachs recently reiterated its “Buy” rating and even nudged its price target higher to 1,400p. That implies a potential upside of roughly 27% from current levels. More broadly, the consensus view across 15 analysts stands at a “Strong Buy”, with an average target of 1,442p — suggesting nearly 30% upside still on the table.
So why are brokers still so confident after such a sharp correction?
The answer lies partly in Rolls-Royce’s recent financial performance. The company reported a 40.6% jump in underlying operating profit for 2025, reaching around £3.46bn. This came in well ahead of earlier guidance and reinforced confidence that the turnaround story is firmly on track. Management also upgraded its medium-term targets for 2026 and 2028, signalling that this growth is expected to continue rather than slow down.
Cash generation has also improved significantly. Rolls-Royce has restarted its dividend, paying 9.5p per share, and announced a multi-year share buyback programme running through 2028. For investors, that means more direct returns and a stronger signal that the balance sheet is in far better shape than it was just a few years ago.
Beyond the numbers, broader industry trends are also working in the company’s favour. Long-haul flying hours — a critical driver of Rolls-Royce’s high-margin engine servicing revenue — have now exceeded pre-pandemic levels. This is a key point because the company makes much of its money not from selling engines, but from maintaining them over time.
There’s also strength coming from other divisions. Defence spending is rising globally, providing steady demand for Rolls-Royce’s military engine business. Meanwhile, its Power Systems unit is benefiting from increased demand tied to data centres and energy infrastructure.
Retail investors appear to be taking note. Platforms like AJ Bell have reported “buy the dip” activity not just in Rolls-Royce, but across travel-related stocks such as IAG and easyJet. The thinking is simple: if long-haul travel remains resilient, Rolls-Royce stands to benefit indirectly through higher engine usage.
However, the recent sell-off has not happened in isolation. A major factor behind the decline is rising geopolitical tension, particularly the conflict involving Iran. This has led to flight disruptions and cancellations, which directly impact Rolls-Royce’s revenue model. When planes are grounded, the company earns less from servicing — a key profit driver.
At the same time, oil prices have been rising, making air travel more expensive. Higher ticket prices can reduce passenger demand, which in turn lowers flying hours. This creates a ripple effect that ultimately hits Rolls-Royce’s earnings potential.
There are also macroeconomic concerns. Inflation across supply chains, potential interest rate hikes, and a broader economic slowdown could all weigh on airline activity and investment cycles. These factors help explain why the market reacted so sharply, even as the company’s fundamentals remain strong.
Another area investors are watching closely is valuation. Even after the 19% drop, Rolls-Royce still trades at a relatively high earnings multiple. The stock has delivered exceptional returns over the past few years — including triple-digit gains in 2023, 2024, and 2025 — and that has raised expectations significantly.
High expectations can be a double-edged sword. If the company continues to deliver strong results, the premium valuation may be justified. But any disappointment — whether in production, delivery timelines, or earnings — could lead to further sharp corrections.
Then there’s the longer-term growth story, particularly around small modular reactors (SMRs). Rolls-Royce is investing heavily in this area, with the aim of developing smaller, more cost-effective nuclear power solutions. The opportunity is huge, especially as countries focus on energy security, but the risks are equally real. The technology is still evolving, and there is no guarantee of commercial success.
Some analysts estimate the SMR programme could add around 40p per share in value if successful. However, given the complexity and uncertainty involved, it remains a long-term bet rather than a near-term driver.
Despite these risks, the overall picture remains balanced. Rolls-Royce today is a very different company compared to its pre-pandemic version. It is more focused, more profitable, and generating significantly stronger cash flows. Its diversified business model — spanning civil aviation, defence, and power systems — also provides a cushion against sector-specific shocks.
For long-term investors, the key question is whether this 19% drop represents a warning sign or an opportunity. Analysts clearly lean toward the latter, pointing to strong fundamentals and upgraded guidance. But the market’s reaction highlights that external risks, from geopolitics to oil prices, cannot be ignored.
At around 1,100p, Rolls-Royce sits at an interesting crossroads. The bull case remains intact, supported by profit growth, cash returns, and industry tailwinds. At the same time, short-term volatility and high expectations mean the path forward may not be smooth.
That tension — between strong fundamentals and external uncertainty — is exactly what makes this stock one of the most closely watched names in the FTSE 100 right now.
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