$RR.L Rolls Royce Powering ahead after the AI Volatility Breakout trade signals. New trailing stop at 1250 zone just above the top end of the front end of the Cloud Chart!
As of February 2026, Rolls-Royce Holdings plc (LSE: RR) is coming off a multi-year "supercycle" of growth. While the 2024–2025 period saw the stock more than triple in value, current StarMine quantitative data suggests a transition from a "momentum play" to a "valuation-sensitive" hold.
Below is a review of the stock based on the core StarMine models.
## StarMine Model Analysis
### 1. Value & Momentum (Val-Mo)
The Val-Mo score for Rolls-Royce is currently under pressure. While the company has maintained strong Price Momentum over the last 12 months (up over 100%), the Value component has deteriorated as the stock price outpaced earnings growth.
Intrinsic Valuation (IV): Analysts suggest the current price (approx. £12.48–£12.80) is trading above its IV. StarMine’s IV model, which uses a Dividend Discount Model (DDM) approach, indicates that the market is already pricing in a "perfect" execution of the company’s 2026–2028 targets.
Relative Valuation (RV): Compared to peers in Aerospace & Defense (like GE or Safran), Rolls-Royce's forward P/E of ~39x is now near the top of its historical and industry range.
### 2. Analyst Revisions Model (ARM)
The ARM score remains relatively robust but is showing signs of plateauing.
SmartEstimates: StarMine’s SmartEstimates—which put more weight on recently updated forecasts from the most accurate analysts—predict a 2026 EPS of approximately 32.6p.
The Trend: While there were massive upward revisions in late 2025, the pace of these "beat-and-raise" cycles is slowing. The market is now focused on whether the 20% + operating margins achieved in Civil Aerospace are sustainable or if supply chain costs will begin to eat into the bottom line.
### 3. Combined Credit Risk (CCR)
This is a standout area for Rolls-Royce. The StarMine CCR score has improved dramatically over the last 24 months.
Structural Model: Because the stock price has risen so significantly, the "market's view" of default risk has dropped to near-zero.
SmartRatios: With a net cash position of £1.1bn (as of mid-2025) and free cash flow (FCF) projected to hit £3.1bn for FY2025, the company’s liquidity and solvency ratios are at their strongest levels in a decade.
## Investment Summary Table (Est. 2026 Data)
| Metric | Current Estimate | StarMine Context |
| Forward P/E Ratio | ~38.2x | High (suggests overvaluation) |
| PEG Ratio | ~2.8 | Above the "fair value" threshold of 1.0 |
| Dividend Yield | ~1.1% | Low (growing, but not yet an income stock) |
| Net Cash | £1.1bn+ | Excellent (StarMine Credit Risk: Very Low) |
| Operating Margin | ~19-20% | Top Tier (near historical highs) |
## The "Verbal" Verdict
Rolls-Royce has successfully completed its turnaround. However, from a StarMine perspective, the "Low Quality of Earnings" risk is rising simply because the valuation has become so rich. The stock is currently "priced for perfection," meaning any slight miss in engine flying hours or a delay in the Small Modular Reactor (SMR) program could lead to a sharp correction.
Key takeaway: If you are holding, the credit and momentum data support staying the course. If you are looking to enter, the Intrinsic Valuation model suggests waiting for a pullback toward the £11.00 - £11.50 range.
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