J.P. Morgan has increased its price target for Rolls-Royce Holdings to 1,625 pence from 1,500 pence and kept its stance of overweight on the shares. The firm set the new target for December 2027, which it says equates to approximately 16% potential upside from the June 26 closing level of 1,406.2 pence.
Two principal adjustments underpinned the change. First, the broker raised its earnings-per-share forecasts for 2027-30 by 3% per annum after revising expectations for the Power Systems division. Second, J.P. Morgan shifted from applying a single target multiple across the group to a sum-of-the-parts (SOTP) methodology, a move the analysts say better captures the value of Rolls-Royce's non-aerospace-and-defence operations, notably Power Systems and the small modular reactor - SMR - programme.
Within Power Systems, J.P. Morgan boosted its 2026-30 EBITA estimates by 3%, 8%, 9%, 9% and 9% respectively. The broker noted that this follows the division moving to the top of the company's 2028 EBITA margin guidance range of 18-20% - whereas its prior modelling had been anchored at the mid-point of that range. The analysts attributed part of their reassessment to an investor teach-in hosted by divisional management on June 26.
J.P. Morgan highlighted the potential for Rolls-Royce Power Systems (RRPS) to outperform its current forecasts if key end markets - specifically datacentres and German defence - expand faster or for longer than the broker currently assumes. In its SOTP approach, the Power Systems business is valued using multiples drawn from a peer group that includes Caterpillar, Cummins, GE Vernova, Generac, Bloom and Wartsila, with J.P. Morgan assuming a 10% premium to the peer group's average 2028 EV/EBITA multiple.
For the SMR initiative, the broker has increased its assigned value to £5 billion from a prior £3.5 billion. That valuation is based on the average market capitalisation of two U.S. start-ups in the sector - Oklo and NuScale - the broker said, while acknowledging the difficulty of valuing a business that currently records no sales and is loss-making.
On the Civil Aerospace and Defence side, J.P. Morgan described those divisions as resilient. Citing remarks made by Chief Financial Officer Helen McCabe at the JPM Industrials Conference on June 16, the broker said the conflict in Iran had so far had "very little impact" on the Civil Aerospace business and that any effects had been offset by mitigating actions. McCabe also indicated that aftermarket campaigns were highly active across all engines.
In Defence, the analysts noted that around 25% of Rolls-Royce's sales are UK-derived and that second-quarter news flow had been dominated by debate over UK defence under-funding. Nonetheless, J.P. Morgan said it does not expect current UK fiscal pressures to have a material impact on the Defence division, pointing to Rolls-Royce's strong positioning on long-term programmes including GCAP and AUKUS. The broker highlighted that original equipment deliveries in Defence rose 20% in the first quarter of 2026.
J.P. Morgan's SOTP model produces standalone valuations of £73.08 billion for Civil Aerospace - applying the same target EV/EBITA multiple the broker uses for Safran - and £14.11 billion for Defence, using the average target multiple J.P. Morgan applies to European defence companies.
The broker said its December-2027 price target corresponds to a 2028 clean price-to-earnings ratio of about 32.5 times, an EV/EBITA multiple near 23.5 times, and a free cash flow yield of roughly 4.1%.
"We think there is potential for RRPS to beat our forecasts if the key end markets (datacentres; German defence) grow faster / for longer than we currently assume," J.P. Morgan wrote.
J.P. Morgan flagged key downside risks to its rating and price target. A slower-than-expected recovery in long-haul air travel could weigh on the group's free cash flow projections, and any reduction in datacentre investment would represent a direct headwind to the Power Systems division, which is benefitting from that demand today.
Overall, the broker's reassessment combines modest upward revisions to forecast earnings with a more granular valuation framework that assigns explicit values to distinct business lines, and it applies peer-derived multiples - with premiums in some cases - to capture perceived upside in Power Systems and the nascent SMR opportunity. The firm also reiterated the resilient operating tone seen in Civil Aerospace and Defence, while acknowledging the limits of valuing loss-making early-stage businesses such as the SMR unit.
Contextual note - The actions and figures discussed above reflect J.P. Morgan's updated modelling and valuation choices as stated by the broker. The report highlights areas where actual outcomes - for example in datacentre demand or long-haul travel recovery - could alter the company's financial trajectory relative to the broker's baseline.