City view: Rolls-Royce and Legal & General

Rolls-Royce engineer at work. Credit: Rolls-Royce via Flickr.

The upside case for Rolls-Royce Holdings (LSE:RR.) and Legal & General Group (LSE:LGEN) shares has been made in the City as analysts gear up for the first FTSE 100 earnings growth since the first half of 2023.

Lloyds Banking Group (LSE:LLOY), Shell (LSE:SHEL), BP (LSE:BP.), GSK (LSE:GSK) and Barclays (LSE:BARC) have already reported full-year figures, with the annual results of Rolls due on 25 February and Legal & General set for 11 March.

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Across the FTSE 100, earnings for the second half of 2025 are forecast to show an increase of 1% year-on-year in what would be the first positive performance in more than two years.

This reflects a recovery for City consensus forecasts since the slump post Liberation Day.

However, Deutsche Bank believes the estimates are still too cautious given fading trade uncertainty and better-than-expected economic growth. It sees scope for 4% beats across the earnings season, which also sees Aviva (LSE:AV.) and Reckitt Benckiser Group (LSE:RKT) report on 5 March.

High-flying Rolls-Royce shares have continued to trade at near-record levels in the run-up to its results, although at 1,258p they are slightly off the peak of 1,306p set in early January.

Bank of America believes the annual figures can be a positive catalyst after it highlighted a price target of 1,600p in a results preview published earlier this week.

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It said the read-across from updates by US-based GE and Hexcel Corporation pointed to continued tightness in the widebody aftermarket and a step‑up in A350 deliveries over the next 12 months.

The bank also flagged positive trends for Rolls-Royce’s data centre exposure after power systems peers CAT and Cummins showed strong backlog growth in primary and back-up power.

BofA estimates show that Rolls is on track to report 18.5% growth in full-year earnings per share to 28.8p, alongside an improvement in the total dividend from 6p to 8.63p a share. This compares with the City consensus of 29p and 9.4p respectively.

In November, the engines giant reiterated the guidance in July’s beat-and-raise interim results when it said that it would deliver an underlying profit of £3.1 billion and £3.2 billion in 2025.

Rolls also said it had completed £900 million of a £1 billion share buyback programme.

Bank of America added: “We expect meaningful acceleration in capital allocation and believe management now has the cash and balance‑sheet visibility to announce a multi‑year buyback.”

The pre-results support for Legal & General came from Berenberg after the City bank rolled forward its price target to 308p, which compares with today’s 267.7p.

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The shares last topped 300p in early 2022, although with a dividend yield of more than 8% investors have been well paid while they await an upturn.

L&G has reached the midpoint of its 2025-27 strategic plan but Berenberg believes the arrival of a new financial boss may prompt the life insurer and asset management firm to take the first steps towards “reducing L&G’s complexity and opacity”.

It said: “We believe that these steps could provide more clarity regarding growth and potentially efficiency gains.”

Higher annuity volumes mean L&G continues to deliver strong cash generation and a growing dividend, which is scheduled to rise by 2% a year until 2027. Berenberg forecasts a total of 21.79p a share for 2025, with earnings per share seen 2% higher at 20.95p.

The group’s operations include its £1.1 trillion asset management division, which is a critical driver of the group’s strategy as it works “synergistically” with the Institutional Retirement and Retail divisions.

Earlier this month, L&G completed the sale of its US insurance unit to Meiji Yasuda in a move that it said would result in £1 billion of share buybacks in 2026 on top of the £200 million from its recurring annual programme.

Berenberg said: “Together with its 2025 dividend, we estimate that L&G will be returning £2.4 billion cash to shareholders in 2026 equivalent to a total cash yield of 16%.”