It’s not too late to buy surging Rolls-Royce shares!

Rolls-Royce (LSE:RR) Shares jumped there. And, as Rolls is one of the largest holdings, I was chuffed!

But I see solid earnings data as part of a broader recovery for this tech giant. There is definitely still value here.

So let’s take a look at why investors should dive into Rolls-Royce shares.

Beat expectations

I have hypothesized for several months that the Recovery Rolls is further down than the stock price reflected. The big challenge is about civil aviation – a segment that accounts for 40% of revenue.

On Thursday, the company posted a statutory operating profit of £837 million in 2022, up from £513 million a year earlier. Meanwhile, revenue rose to £13.5bn from £11.2bn.

Recovery in civil aviation is a major part. At FTSE 100 the company gets paid when the machine flies and needs service – the pandemic almost destroyed the business.

However, for 2022, Rolls says that large engine flying hours in civil aerospace will increase by 35% per year. The company previously suggested that flight hours would be around 65% of 2019 levels by the end of 2022.

We already know that other parts of the business, power systems and defense, are performing well. And the 2022 earnings report confirmed this, with order growth for power systems, up 29% to £4.3bn.

All three business units have positive cash flows.

Why isn’t it too late?

In its report, Rolls said it expects revenue of around £800m-£1bn this fiscal year. That is clearly positive if we consider where the company was just two years ago.

Rolls did not provide details on its forecasts for 2023 and 2024, but said it will set new financial targets in H2 as it begins a strategic review of the business.

Looking forward without much guidance from the company itself, investors will naturally be wary of the group’s debt burden. Serving this will result in profits for many years.

But the fundamentals here are strong, and businesses could be set to exceed 2019 earnings (£15.4bn) this year for the first time since the pandemic.

Civil aviation will be key to this. “In 2023, we assume large engine flying hours at 80-90% of 2019 levels and total shop visits of 1,200-1,300“, the company said. The re-opening of China is noted as a big boost to contract flying hours, as wide-body jets with Rolls engines are often used on domestic flights in the country.

Overall, we can see that Rolls – which is a smaller business due to Covid-era sales – is on the road to recovery. We won’t immediately see stock prices hit their highs in 2019 – shares are down a phenomenal 62% in five years (down 8% in one year).

But what is clear is that the way forward is much less risky. The group is profitable and all business units are growing.

So I will buy another share at 130p? Absolutely. I will dive in for a long-term recovery story and buy more when I have capital available.