Rheinmetall's Defence Makeover: Why a €73 Billion Order Book Isn't Lifting the Stock

Rheinmetall has never been busier on the operational front. Its order backlog has swelled to €73 billion, the company is shedding its last civilian business to become a pure-play defence contractor, and the vast majority of analysts still rate the stock a buy. Yet the share price tells a very different story — one of persistent weakness and mounting investor scepticism.

The disconnect has become the defining feature of the stock this year. After closing on Friday at €1,190.00, Rheinmetall has fallen 25.69% since January and 33.28% over the past twelve months. The equity now sits just 8.2% above its 52-week low, well below both its 50-day moving average of €1,338 and its 200-day moving average of €1,617. The relative strength index stands at 39.6, pointing to technically bruised but not yet oversold conditions.

That underperformance stands in sharp contrast to the company's strategic progress. Last month Rheinmetall agreed to sell its Power Systems division to Aequita for around €350 million, with the deal expected to close in the fourth quarter of 2026. The divestment marks the final step in abandoning the old conglomerate model. Once completed, roughly 34,000 of the group's 40,000 employees will sit within the defence core, leaving behind the cyclical automotive-supplier business for higher-margin military systems.

The order pipeline backs up that shift. The €73 billion backlog, up from €56 billion a year ago, gives the company years of production visibility — a rare luxury for an industrial group. First-quarter numbers reflected the momentum: revenue rose 8% to €1.938 billion, while operating profit climbed from €191 million to €224 million, lifting the margin to 11.6%. The air defence segment alone expanded by 43% in the period.

Should investors sell immediately? Or is it worth buying Rheinmetall?

Yet the market is focusing on another figure. Operating free cash flow from continuing operations slumped to minus €285 million in Q1, reversing a positive €243 million in the same quarter last year. Rheinmetall attributes the cash burn to deliberate inventory build-up ahead of planned growth, but the swing has given bears a clear line of attack. For a company that guides to a full-year operating margin of around 19% and revenue of €14.0–€14.5 billion, the cash trajectory remains a key question mark.

Analyst enthusiasm has proved remarkably resilient despite the stock's slide. Out of 21 analysts polled in May, 20 rate the shares a buy and one recommends hold. The average price target sits at €2,025 — implying upside of roughly 70% from the current level. Targets range from Deutsche Bank's €2,100 and Barclays' €2,035 to Jefferies' €1,890, all with buy ratings. UBS is more cautious at €1,600, while JP Morgan sets a neutral rating and a target of €1,500.

That bulls are still out in force suggests the market is waiting for a concrete catalyst rather than questioning the long-term thesis. The next major test comes in mid-June at the ILA Berlin air show, where Rheinmetall is expected to showcase new technology including the autonomous MQ-28 Ghost Bat system and advanced satellite capabilities. The event runs from June 10 to 14 and will be the first public platform to demonstrate the group's pivot toward digitised warfare.

Rheinmetall at a turning point? This analysis reveals what investors need to know now.

On the macro front, the European Central Bank's interest-rate decision in the same week will also set the tone. A dovish path would support industrial valuations; a hawkish signal could prolong the stock's search for a floor. The next hard data point arrives on August 6 with the half-year report, followed by third-quarter numbers on November 5 and a capital markets day later that month.

Until then, the stock looks caught between a record order book and a market demanding proof that the transformation translates into cash generation. The volatility is running at an annualised 52%, a level that leaves little room for error when the reports land.

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