Hensoldt's Live Radar Tests Fail to Lift Shares as Defense Liquidity Drain Weighs

Despite successful next-gen radar flight tests, Hensoldt shares fall 7% amid €15-20bn KNDS IPO and defense sector rotation; cash flow guidance raised offers 29% upside per Deutsche Bank.

Hensoldt has switched on the next-generation ECRS Mk1 radar for the Eurofighter and begun live flight testing — a clear technological milestone. Yet the stock is barely registering the achievement. At €78.20, shares have shed nearly 7% over the past week and sit 32% below their 52-week high of €115.10. The disconnect between operational progress and market performance is widening.

Two powerful currents are running against the sensor specialist. The first is the imminent €15bn–€20bn initial public offering of the Franco-German defense group KNDS, expected in June or July 2026. Institutional investors are widely expected to rotate capital out of existing holdings — including Hensoldt — to free up cash for the blockbuster listing. The second is a broader sector rotation that has clipped defense stocks across the board, even as demand for electronic warfare systems continues to climb.

The radar campaign itself is on track. Developed alongside Spain’s Indra Group, the ECRS Mk1 multi-channel AESA array is now flying with full hardware and the latest software iteration, delivering early results that confirm the robustness of the new architecture. The system is designed to enhance air-to-air and air-to-ground missions while enabling electronic attack capabilities. Next steps include instrumented flight tests on development Eurofighters and an A320 fitted with a Eurofighter nose. Deliveries to Germany and Spain are scheduled for 2027; Berlin has committed to 38 Quadriga-standard jets.

Meanwhile, the cash flow story is improving. Management raised its free-cash-flow guidance for 2026 in early June, now targeting roughly 50% of adjusted EBITDA, up from 40%, thanks to faster customer prepayments linked to accelerated German procurement processes. The full-year revenue forecast of €2.75bn and adjusted EBITDA margin of 18.5%–19.0% remain unchanged. Deutsche Bank, seeing the cash flow upgrade as a strong signal from the C-suite, has reiterated its €101 price target — implying 29% upside from current levels.

More than 11% has been shaved off the stock over the past five trading sessions, according to one data set, and the technical picture offers little immediate relief. Shares are trading just below their 50-day moving average of €78.84 — a gap of 0.81%. The relative strength index sits at 44.9, neutral territory that leaves room for a counter-move but provides no catalyst on its own.

The coming weeks are packed with sector catalysts that could shift sentiment. The ILA Berlin air show opens on June 10, followed a week later by the Eurosatory defense exhibition in Paris — both events where Hensoldt could land new orders. On the same day as ILA, Renk, the transmission specialist and fellow defense supplier, holds its annual general meeting and is guiding for 2026 revenue above €1.5bn, offering a read-through for the entire sector. Political tailwinds remain strong, with Chancellor-in-waiting Friedrich Merz and Defence Minister Boris Pistorius again calling for higher military spending over the weekend.

Away from Hensoldt itself, the broader defense ecosystem is humming. Kuwait has received approval for $1.7bn in US drone-defence systems — a deal that primarily benefits Anduril but underscores rising demand for electronic protection, Hensoldt's core domain. TKMS is hiring more than 1,000 new workers, and Safran is pouring €120m into precision sensor production. For Hensoldt, the real test comes on July 31, when half-year results will show whether its record order backlog is finally translating into revenue and profit growth. The cash flow upgrade was a welcome first step; the next must be on the top line.