Fresh Look at Rolls-Royce; Narrow Moat and Stable Trend Maintained; Shares 20% Undervalued
After taking a fresh look at narrow-moat Rolls-Royce, we reduce our FVE to GBP 11, 6% below our previous estimate to account for higher uncertainty about firm’s earnings profile. We can't precisely forecast key margin drivers such as flight time and spare parts on a year-to-year basis. We believe that multiples, like the popular P/E, have a short-term view and misrepresent Rolls-Royce's earnings potential. The engine business has a long-term return profile: at program inception, engines are sold...
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