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There is a growing argument among analysts that the market has been too harsh on Rolls-Royce. The stock (LSE: RR.) closed at around 1,191p on May 12. This figure is a far cry below its 52-week peak of 1,420p, and after a challenging March that saw its value decline by about 17%, its year-to-date gain is currently around 2%. Considering the company's impressive 953% return over the past five years and its forecast for record profits in 2026, these recent stock movements seem to present a puzzling discrepancy. Geopolitical Pressures and Aviation Resilience The Iran conflict has undeniably introduced short-term disruption. Middle East airspace closures and route adjustments have affected some airline operations. This, in turn, has affected engine flying hours (EFH), which are crucial for Rolls-Royce's aftermarket revenue generated by its "power by the hour" service agreements. Given that civil aerospace contributes a significant share of the company's profits, the rerouting of flights by various carriers naturally had an impact on this segment. However, the company has responded proactively. In its April 2026 trading update, Rolls-Royce conveyed its expectation to manage and offset these immediate financial pressures. Management specifically noted a robust rebound in Middle East engine flying hours. Also, some Trent XWB engines are already operating at pre-conflict volumes, and other geographic region benefiting from adjusted capacity deployment. Large engine flying hours achieved 115% of 2019 levels during the first quarter, with the full-year outlook for 115-120% remaining consistent. These are details the market initially chose to overlook. Furthermore, the vast majority of global aviation routes remain operational, and demand for widebody aircraft stays firm. New orders, including Trent engines for Delta, Atlas Worldwide, and LATAM, underscore ongoing confidence in the fleet. Strong Order Book and Diversified Portfolio Strengthen Outlook Rolls-Royce enters this period with significant momentum. The order backlog remains healthy across segments. Civil aerospace benefits from a young fleet and growing aftermarket. The defense sector continues to experience consistent demand, evidenced by recent contracts for EJ200 engines for Eurofighters and MT30 turbines for various naval initiatives. Furthermore, Power Systems recorded exceptional orders in March, largely fueled by demand from data centers and government agreements, resulting in a backlog now standing at £7.3 billion. Rolls-Royce has also announced a £7–£9 billion multi-year share buyback programme across 2026 to 2028. That is a clear statement from management that the shares are undervalued. Companies do not commit to buybacks of that scale when they expect their own fundamentals to disappoint. The next earnings update arrives on July 30. Between now and then, the risk remains a renewed escalation in the Middle East. However, the company has already demonstrated it can absorb that shock. For investors with a medium-term horizon, the current 1,180–1,200p range may well look, in hindsight, like the most obvious entry point of 2026. If the conflict stabilizes and the half-year results confirm that margins are still expanding toward the 18% target, the "dip" we are seeing now might eventually be viewed as a rare entry point for a world-class engineering firm trading at a temporary geopolitical discount. Why has Rolls-Royce stock struggled in 2026 despite a strong order book? The underperformance is attributed to geopolitical tensions from the Iran conflict disrupted some aviation routes, pressuring engine flying hours and causing a March sell-off. Are Rolls-Royce's earnings actually suffering from the war? Surprisingly, no. The Q1 trading update showed engine flying hours rose to 115% of pre-pandemic levels, and the company maintained its £4bn profit guidance. Is the current 2% YTD gain a sign of trouble? It reflects market caution rather than operational failure. The company is currently executing a £2.5bn share buyback, suggesting management believes the stock is undervalued.