Rheinmetall Caught in Crossfire as Earnings Miss Clashes With Defense Spending Thesis

Rheinmetall stocks climb 4.57% as Citigroup, UBS argue sell-off overdone; Q1 revenue falls short at €1.94B, but record €73B backlog fuels long-term optimism.

The defence heavyweight Rheinmetall staged a sharp recovery on Monday, climbing 4.57% to €1,175.20, as Citigroup’s Charles Armitage argued the sector’s recent rout had overshot reality. The bounce-back, however, masks a deeper tension: the company’s first-quarter numbers fell well short of market expectations, leaving the stock torn between a powerful long-term narrative and execution doubts that have already erased roughly 45% from its all-time high.

Armitage’s call — that peace hopes in Ukraine and questions over European defence financing had unfairly punished Rheinmetall — gave traders a reason to wade back in. He warned that Russia would remain a threat even after a potential ceasefire, and singled out Germany and Sweden as among the few nations able to ramp up borrowing for military spending. The assessment chimed with other bullish voices: UBS analyst Sven Weier kept his buy rating, calling the sell-off a “cleansing effect,” while Goldman Sachs’ Sam Burgess characterised the weakness as a “cleansing thunderstorm” — temporary, not structural.

Yet the re-rating optimism sits uncomfortably alongside the stark numbers from January to March. Revenue came in at €1.94 billion, well below the €2.3 billion analysts had pencilled in. Operating profit of €224 million also missed the consensus mark. The market’s initial reaction was brutal: the stock slid to €1,123.80 after the release, compounding a 26% decline over the prior 30 days. JPMorgan stripped its buy rating, downgrading to Neutral and slashing the price target from €2,130 to €1,500. Berenberg followed suit, trimming its fair value to €1,750.

Not all houses turned bearish. Warburg Research upgraded the stock to Buy, arguing the valuation had become too attractive to ignore. Barclays also held firm, reiterating that Rheinmetall remains one of the prime beneficiaries of Europe’s long-term rearmament push. The split among analysts underscores the central dilemma: near-term delivery has disappointed, but the order book tells a different story.

That backlog hit a record €73 billion in the first quarter, with group revenue up 8% and the operating margin improving to 11.6%. The pipeline continues to swell. Rheinmetall recently expanded into cruise missiles through a joint venture with Dutch firm Destinus, and broader demand for security infrastructure could receive an indirect boost from the German Red Cross’s call for €2 billion in civil defence investments by 2027. For 2027, analysts project earnings per share growth of roughly 31%, implying a forward price-to-earnings multiple of about 20.

For now, the stock is caught between two forces: a Q1 miss that forces management to prove it can convert surging demand into higher margins, and a geopolitical environment that keeps defence spending at the top of European agendas. Monday’s bounce suggests some investors believe the sell-off has already priced in the disappointment. Whether that confidence holds will depend on the next quarterly delivery — and on whether the peace headlines that rattled the sector in recent weeks give way to a more sober assessment of the long-term threat landscape.