Rolls-Royce (LSE: RR)fell foul of the City expectations machine last week because, despite posting very good financial results for 2013 with profits growth of 23%, it has said that profits won't grow at all in 2014. The share price has been hammered.
We tipped Rolls-Royce as a long-term buy in MoneyWeek a few weeks ago. While the timing of this tip now looks unfortunate, we still believe that the long-term prospects for its shares remain good.
Profits will be held back in 2014 due to governments cutting back on defence spending. Consequently, Rolls-Royce expects its defence profits to be down by 20%. That's disappointing, but the investment case for the shareshas always been primarily about the the prospects for the company's civil aerospace business, as customers such asBoeing and Airbus ramp up production.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
In 2014, profits in thissection are expected to grow strongly. Total company profitsare expected to start growing again in 2015. Taking a step backfrom the short-term outlook, Rolls-Royce looks to be in rudehealth.
Its order book of £71bn is nearly five times current salesand will help deliver long-term profit growth. It can still cutcosts and boost cash flow if need be. The company also has£1.9bn of net cash in the bank.
Verdict: buy
-
Who is the richest person in the world?The top five richest people in the world have a combined net worth of $825 billion. Who takes the crown for the richest person in the world?
-
Top 10 stocks with highest growth over past decade - from Nvidia, Microsoft to Netflix, which companies made you the most money?
We reveal the 10 global companies with the biggest returns since 2013. One firm has posted an astonishing 9,870% return, meaning a £1,000 investment would now be worth almost £82,000.
