Rolls-Royce upgraded by Societe Generale after sell-off

14th Feb 2014 10:19

Societe Generale has lifted its view on Rolls-Royce from 'sell' to 'hold' despite the aerospace and defence group's gloomy guidance for 2014, saying that the stock is now trading at a substantial discount to peers after its recent sell-off.Rolls-Royce reported an in-line set of 2013 results on Thursday but disappointed with its estimates for 2014 after saying that revenues and profits will be flat due to cuts in government defence spending. The stock was down around 14% by the close of trade.Societe said that it has adjusted its forecasts to reflect the guidance, cutting earnings per share estimates for 2014 and 2015 by 11% and 13%, respectively."The stock has seen a sharp negative reaction to the 2013 results and 2014 guidance. Although medium-term earnings guidance was cut by c7-8%, the stock fell c15% on the release," said Equity Analyst Zafar Khan."The Rolls-Royce model is not broken by any means, and the stock looks attractive at current levels, having dropped c20% since January, but lacks a short-term catalyst for a re-rating."Khan has cut its target price for the stock from 1,150p to 1,070p."Our upgrade reflects RR now trading at a substantial discount to peers when previously it traded at a premium; while a discount is appropriate, we consider the current discount excessive."The share price was 0.9% higher at 1,053p by 10:50 on Friday.BC