Rolls-Royce Holdings (RRN) AI Stock Analysis

Company Guidance

Rolls‑Royce guided 2026 underlying operating profit of £4.0–4.2bn and free cash flow of £3.6–3.8bn, and upgraded its 2028 mid‑term targets to operating profit £4.9–5.2bn, operating margin 18–20%, free cash flow £5.0–5.3bn and return on capital 23–26%; division mid‑term margins were set at Civil Aerospace 21–23%, Power Systems 18–20% and Defence 14–16%. For 2026 the company expects net LTSA balance growth broadly similar to 2025, large‑engine flying hours of c.115–120% of 2019 (rising to c.130–140% by mid‑term), shop visits of 1,480–1,550 in 2026 peaking then falling to 1,300–1,400 by 2028, and mid‑term net LTSA balance growth of c.£0.8–1.2bn; it also flagged a 2026 supply‑chain cash drag of c.£150–200m that will be gone by the mid‑term and assumes a blended FX of $1.33/£ (vs $1.44 in 2025). The plan anticipates mid‑term investment averaging above depreciation & amortisation, working‑capital releases with 2028 broadly neutral, overhedge costs cleared by end‑2026, higher cash tax as profits grow, a £7–9bn 2026–28 buyback program (c.£2.5bn in 2026 including £200m already executed) alongside growing dividends (2025 final 5p, full year 9.5p, 32% payout), and sees contract margins ~2pp and LTSA income‑statement margins ~8pp higher than prior guidance, all supporting sustained margin and cash‑flow expansion.