Rolls-Royce (LSE:RR.) shares have been one of the most extraordinary wealth-creation stories on the London Stock Exchange in recent memory. From a low of around 70p in late 2022, the aerospace and defence giant has surged to over 1,200p today!

That’s a skyrocketing 1,614% surge in under four years, driven by one of the most impressive turnaround stories in FTSE 100 history.

But with the share price now trading near multi-year highs, here’s the question every investor’s now asking: how much further can this stock go?

What analysts are saying

Three of the City’s leading institutional analysts have recently updated their views on Rolls-Royce, and the picture’s broadly encouraging.

There are a variety of factors driving this optimistic outlook. However, a few common themes emerge when looking at the latest analyst research and comments.

Civil aerospace engine flying hours have recovered to 115% of 2019 pre-pandemic levels, which feeds directly into the highly profitable long-term service agreements that underpin Rolls-Royce’s earnings.

But more momentum’s also materialising in the Power Systems segment. With long-term demand surging for small modular reactors and turbine power systems to provide energy for data centres, several analysts have begun upgrading their growth projections for this division.

UBS has recently raised its growth target from 20% to 26% for the period between 2024 and 2028, as a result. And we’re already seeing early signs of this forecast materialising.

The Power Systems order book now stands at £7.3bn, with March having been a record month for new orders. And when paired with already impressive levels of free cash flow generation, the doors have swung open for more meaningful debt reduction.

With that in mind, it isn’t surprising to see analyst conviction behind Rolls-Royce shares grow stronger. But not everyone is convinced…

What could go wrong?

Despite the positive momentum, the analyst team at Berenberg maintains a Hold rating with a more conservative 1,200p target, fearing that all this expected future growth could already be priced in today’s valuation. But even the more bullish analysts have flagged several important risk factors.

Geopolitical supply chain disruptions remain an ongoing operational threat, global aviation demand’s sensitive to macroeconomic conditions, and future revenue targets depend heavily on the flawless execution of new defence and small modular reactor contracts – none of which is guaranteed.

The bottom line

For long-term investors, the combination of recovering civil aerospace, surging power generation demand, and disciplined capital allocation makes this a compelling story. And it’s why the analyst community is broadly bullish on Rolls-Royce shares.

However, personally, I think there are even more attractive UK aerospace and engineering stocks for investors to explore today. So I’m not rushing to buy any shares right now. But it’s definitely a business worth watching closely this year.