Shares in Rolls-Royce Holdings (RR.L) climbed 1.1% to 1,293.7p in London trading on Thursday, building on a 6.4% rally from the previous session. The aerospace and defense company continues to benefit from a reaffirmed 2026 outlook and an ongoing share buyback program, which have helped ease investor concerns about potential disruption from Middle East tensions.
The company reported a 5% increase in large engine flying hours during the first quarter, reaching 115% of pre-pandemic 2019 levels. This metric is closely watched by investors as it directly correlates with aftermarket service revenue. Rolls-Royce management reiterated its full-year forecast, expecting flying hours to land between 115% and 120% of 2019 levels, unchanged from prior guidance.
Buyback Progress
A regulatory filing on Wednesday revealed that Rolls-Royce repurchased 3.8 million ordinary shares between April 28 and May 4 as part of its £2.3 billion buyback program. Since the program's inception, the company has bought back 50.9 million shares at a weighted average price of 1,200.81p, all of which are slated for cancellation. The buyback is a key component of Rolls-Royce's capital return strategy, which includes plans for £7 billion to £9 billion in total buybacks between 2026 and 2028, with £2.5 billion earmarked for this year alone.
2026 Targets Intact
Chief Executive Tufan Erginbilgic described the start of the year as "strong" and stated that the group expects to "fully mitigate" the financial impact from ongoing Middle East disruptions. The company's 2026 targets for underlying operating profit of £4.0 billion to £4.2 billion and free cash flow of £3.6 billion to £3.8 billion remain unchanged. Analyst consensus, based on 12 estimates gathered in April, puts 2026 underlying EBIT at £4.13 billion and free cash flow at £3.73 billion, aligning closely with management's guidance. Looking further ahead, consensus estimates for 2028 reach £5.43 billion in EBIT and £5.15 billion in free cash flow, underscoring the market's focus on long-term momentum.
Risks and Competitive Landscape
Despite the positive outlook, risks remain. Aarin Chiekrie, equity analyst at Hargreaves Lansdown, highlighted "execution risk," noting that certain newer engines require more maintenance than operators prefer. If management fails to meet improvement targets on schedule, markets could react negatively. On the competitive front, UBS sees room for Rolls-Royce to outperform peers, citing gains in pricing and margins. However, the narrowbody aircraft segment remains dominated by CFM International (a joint venture between GE Aerospace and Safran) and RTX's Pratt & Whitney unit. Rolls-Royce does not currently compete in that market, so its stock performance hinges on widebody engine hours.
Financial Position and Diversification
Rolls-Royce's financial health has improved significantly since the pandemic. For 2025, the company reported underlying operating profit of £3.46 billion, free cash flow of £3.27 billion, and net cash of £1.90 billion. Beyond civil aerospace, the company is drawing investor attention in defense, power systems, and nuclear energy. Notably, Rolls-Royce SMR secured a contract from the UK government on April 13 to begin work on the country's first small modular reactors, with £2.6 billion allocated for the program.
The next major catalyst for Rolls-Royce shares will be the first-half results on July 30. In the meantime, the stock is likely to move based on three key factors: engine flying hours, the pace of share buybacks, and whether Middle East disruptions remain contained.
