Credit Suisse upgrades Rolls-Royce, says negatives are now priced in

5th Aug 2015 13:14

(ShareCast News) - Credit Suisse upgraded Rolls-Royce to 'neutral' from 'underperform' and raised the price target to 845p from 784.30p, saying most of the negatives are now in the share price.It noted the shares are down 22% over the last 12 months, underperforming the Stoxx 600 by 41% following a string of profit warnings since early 2014.The bank said the last remaining risk it sees is in Power Systems, where the guidance has been maintained despite a lacklustre environment and a weak first half.Credit Suisse said it has cut its EPS estimates for 2015 to 2018 to reflect the profit warnings of 6 July and the fact first-half results did not materially alter the group outlook.The bank said the positive optionality derived from the management change and the operational review has not been factored in by consensus, with a number of downgrades and target price cuts following the latest profit warning."In our view, the key questions are: when will the benefits be delivered and how large can they be," it said.CS argued that the recent involvement of US-based activist ValueAct, which now has a 5.4% stake in the company, has changed the market focus from the poor current 2018 outlook to the possibility of improved profitability and maybe even a break-up of the group, although management recently broadly ruled that out.At 13:21, Rolls-Royce shares were down 1.1% at 815p.