Rheinmetall Shares Catch a Bid After Citi Upgrade, but Earnings Shortfall Clouds the Picture

The defence sector’s darling has taken a beating, and the recovery attempts are tentative at best. Rheinmetall’s stock climbed about 3% on Monday to €1,159, shaking off some of the gloom after Citigroup lifted its rating to “Buy.” The upgrade came as a welcome respite from a slide that has wiped nearly 42% off the share price since September’s high and left it roughly 45% below the all-time peak.

But the bounce rests on shaky ground. First-quarter numbers released last week landed with a thud: revenue of €1.94 billion fell well short of the €2.3 billion analysts had pencilled in, while operating profit of €224 million also missed consensus. The stock closed that session at €1,123.80, and over the past 30 days it has shed about 26%, dragging it dangerously close to the year’s low of €1,118.

Citigroup analyst Charles Armitage argues the market has overreacted to peace hopes in the Ukraine conflict and lingering concerns over long-term defence funding. The structural demand for ammunition and weapons systems, he contends, remains elevated for years to come, making the current valuation an attractive entry point. JPMorgan, however, took the opposite view in the wake of the earnings miss: it cut its recommendation from “Buy” to “Neutral” and slashed the price target from €2,130 to €1,500. Berenberg followed suit, trimming its fair value estimate to €1,750.

Other houses see opportunity in the wreckage. Warburg Research upgraded the stock to “Buy,” citing a far more appealing valuation after the sell-off, while Barclays retains its positive stance, calling Rheinmetall a long-term beneficiary of Europe’s rearmament drive.

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

Maritime ambitions gather pace

Even as the market digests the quarterly disappointment, Rheinmetall is pushing ahead with its naval expansion. The group is locked in a bidding war with Thyssenkrupp Marine Systems for German Naval Yards Kiel, currently owned by France’s CMN Naval. The Kiel yard is viewed as a strategic asset for surface warship construction. Rheinmetall would gain a cornerstone for its standalone naval division, complementing the planned integration of Lürssen’s marine business in early 2026. TKMS has warned against inflated purchase prices, underscoring the intensity of the contest.

The company’s capital spending is weighing on near-term liquidity. Investments in new production capacity — including a drone plant in Neuss — contributed to the cash drain that partly explains the Q1 shortfall. With the stock trading about 30% below its 200-day moving average, a level that has historically proven unsustainable for long, the market is now watching for concrete large-scale orders, particularly in the naval segment such as the German navy’s F126 frigate programme.

Long-term demand intact, execution the key

Despite the operational hiccup, the geopolitical tailwind for defence spending shows no sign of fading. Rheinmetall recently formed a joint venture with Dutch firm Destinus to manufacture cruise missiles, and even non-military demand — like the German Red Cross’s call for €2 billion in civil protection investments by 2027 — could generate indirect contracts for security infrastructure.

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

Analysts project a price-to-earnings ratio of around 20 for 2027 and earnings per share growth of roughly 31%. Whether those forecasts materialise hinges on the management’s ability to convert a record order backlog into improving operating margins. For now, the market remains split: the Citi upgrade offers a floor, but the earnings miss keeps the ceiling low.

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