Despite a challenging and uncertain macroeconomic environment, Rolls-Royce Holdings plc (RYCEY) reported a strong fiscal 2022 financial performance. Headquartered in London, the United Kingdom, RYCEY designs and supplies power and propulsion solutions for critical applications in air, sea, and land.

The company’s segments include Civil Aerospace; Defence; Power Systems; and New Markets. With the company making significant efforts in sustainable solutions and aiming to create a high-performing, competitive, and resilient business, we look into its fundamentals to decide whether the stock is a good buy this week.

On June 27, RYCEY officially opened a new assembly plant for its mtu Series 2000 engines in Kluftern near Friedrichshafen, Germany. This highlights RYCEY’s focus on developing engines that can run on a wide range of sustainable fuels, replacing fossil fuels and significantly reducing carbon dioxide emissions.

The transition to net zero represents a tremendous opportunity for the company in the sphere of aviation. Its Civil Aerospace segment benefits from government funding for technological developments. The recovering market for international travel and a focus on cost reduction and product maturity is also driving the segment’s growth.

Over the past nine months, the stock has gained 146.8% to close the last trading session at $1.94. 

Here are some factors that could influence RYCEY’s performance in the upcoming months:

Robust Financials 

RYCEY’s revenue increased 15.9% year-over-year to £12.69 billion ($16.15 billion) for the fiscal year 2022. The company’s gross profit increased 24.1% year-over-year to £2.48 billion ($3.15 billion). Moreover, its operating profit increased 57.5% year-over-year to £652 million ($829.46 million).

Discounted Valuation

In terms of forward EV/Sales, RYCEY’s 1.19x is 28.5% lower than the 1.67x industry average. Its 9.35x forward EV/EBITDA is 13% lower than the 10.76x industry average. Likewise, its 0.94x forward Price/Sales is 30% lower than the 1.34x industry average.

Favorable Analyst Estimates 

The consensus EPS estimate of $0.06 for the fiscal year 2023 represents a 173.4% improvement year-over-year. The consensus revenue estimate of $17.52 billion for the same year indicates a 14.8% increase from the prior year. 

Its EPS for fiscal 2024 is expected to increase 43.5% year-over-year to $0.09, while its revenue is expected to increase 7.6% year-over-year to $18.85 billion.

POWR Ratings Show Promise

It’s no surprise that RYCEY has an overall B rating, equating to a Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories.

The stock has a B grade for Growth and Value, in sync with its robust financials and discounted valuation.

It also has a B for Stability, consistent with its 24-month beta of 0.90.

Within the Auto & Vehicle Manufacturers industry, RYCEY is ranked #15 out of 56 stocks.  

Click here to access the additional ratings of RYCEY for Momentum, Sentiment, and Quality. 

Bottom Line 

RYCEY is well-poised for significant growth despite the turbulent macroeconomic conditions, owing to its strong fundamentals as well as strategic investments and developments. Given the company’s solid financial growth, discounted valuation, and favorable analyst estimates, the stock could be a good buy this week.

How Does Rolls-Royce Holdings plc (RYCEY) Stack Up Against Its Peers?  

While RYCEY has an overall POWR Ratings grade of B, equating to a Buy rating, one may also want to consider these other stocks within the Auto & Vehicle Manufacturers industry with an A (Strong Buy) or B (Buy) rating: Volkswagen AG (VWAGY), Mercedes-Benz Group AG (MBGAF), and Mazda Motor Corporation (MZDAY).

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RYCEY shares were trading at $1.94 per share on Tuesday afternoon, down $0.00 (-0.18%). Year-to-date, RYCEY has gained 81.31%, versus a 14.63% rise in the benchmark S&P 500 index during the same period.

About the Author: Malaika Alphonsus

Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions. More...

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