Rolls-Royce Holdings shares have had a volatile start to 2026 after several years of exceptional gains, leaving investors divided over whether the stock is pausing before another move higher or starting to lose momentum. The shares, which have risen more than 1,000% over the past five years, have traded sharply up and down this year but are broadly unchanged overall, raising fresh questions about valuation and future growth potential.
Recent analyst updates reflect that uncertainty. Berenberg maintained a neutral Hold rating while lifting its price target from 1,250p to 1,270p, implying modest upside from recent levels. AlphaValue took a more cautious stance with a Reduce recommendation and a 1,264p target. The mixed tone suggests the market is struggling to agree on how much further Rolls-Royce can run after its dramatic re-rating in recent years.
A key reason for the debate is the company’s transition away from being primarily an aero-engine business. In 2025, Civil Aerospace and Defence together accounted for around 75% of revenue, highlighting how dependent the group still is on aviation-related activity. At the same time, Rolls-Royce is pushing aggressively into Power Systems, particularly small modular reactors, or SMRs, which are central to its longer-term growth strategy.
That expansion is starting to gain traction. The newly announced Wylfa power station on Anglesey is expected to host a fleet of Rolls-Royce SMRs, beginning with an initial three units. The Power Systems order book has now risen above £7 billion, underlining the speed at which that business is building commercial momentum. Revenue from the segment reached £4.9 billion in 2025, still below the scale of the core aviation divisions but potentially capable of growing quickly in the coming years.
Forecasts from brokers after the 2025 results point to continued top-line growth. Revenue is projected to rise from £20.1 billion in 2025 to £22.6 billion in 2026, £24.8 billion in 2027 and £27.35 billion in 2028. Earnings per share are expected to fall from 69.41p in 2025 to 37.6p in 2026 before recovering to 43.5p in 2027 and 51.4p in 2028. On those estimates, the price-to-earnings ratio would move from 17.0 times in 2025 to 30.8 times in 2026, before easing to 26.6 times in 2027 and 22.5 times in 2028.
Management has guided to underlying operating profit of £4.0 billion to £4.2 billion in 2026, alongside free cash flow of £3.6 billion to £3.8 billion. However, the outlook remains difficult to model because both civil aviation and defence markets can shift materially over the medium term. That makes the company’s valuation harder to pin down than the recent share price performance might suggest, leaving Rolls-Royce positioned between proven momentum and future uncertainty.
