Rheinmetall Juggles Record Backlog, KNDS IPO Threat, and a Cash Flow Turnaround Bet

Rheinmetall's stock drops 24% YTD as state-backed KNDS plans mid-2026 IPO; record €73bn order backlog but weak cash flow weighs on sentiment.

Rheinmetall's already fraught relationship with investors is about to get a new complication: the planned mid-2026 initial public offering of state-owned rival KNDS, manufacturer of the Leopard 2 and Panzerhaubitze 2000. Berlin and Paris have each agreed to take 40% stakes in the deutsch-französische armour specialist, which is valued at €18–20bn, and the IPO is slated for June or July. Long term, both governments intend to reduce their holdings to 30%, but in the near term a state-backed, listed competitor will directly challenge Rheinmetall in its core market.

The threat arrives just as the Düsseldorf-based group absorbs a disappointing first quarter. Revenue came in at €1.94bn against market expectations of roughly €2.3bn, while operating profit rose to €224m and earnings per share climbed to €2.42 from €1.92 a year earlier. The stock, now trading at €1,210.60, has shed nearly 24% since the start of the year and sits about 40% below its 52-week high. Analysts have responded with sharp target cuts: UBS slashed its price objective from €2,200 to €1,600, though it retained a buy rating, while JPMorgan lowered its target from €2,130 to €1,500.

At the heart of the market's disquiet is a tension between a bulging order book and weak cash generation. Rheinmetall's order backlog stands at a record €73bn, including €5.5bn from its newly consolidated marine division, which contributed €77m in its first full month in March. Yet heavy upfront investment in new production capacity for cruise missiles, military satellites, and naval systems is crimping free cash flow. The company is also building a dedicated marine-systems unit to reduce its dependence on traditional land platforms.

Management is sticking to its forecast that the cash-flow inflection point will arrive in the second half of 2026, when pre-produced systems such as military trucks and armoured vehicles are formally accepted by customers. "We are expanding from a classic armoured-vehicle manufacturer into a comprehensive high-tech defence group," the company has been telling investors in New York and London. The operating result increased, but the expensive pre-financing of large-scale orders continues to dampen buying sentiment.

Beyond the organic push, Rheinmetall is eyeing acquisitions. The company is reported to be interested in Iveco's defence unit (IDV), which is being carved out for sale while Iveco itself negotiates with India's Tata conglomerate. Other suitors include Leonardo, KNDS, and CSG. Any deal would come against a backdrop of expected German economic stagnation in the second quarter, according to the Bundesbank, weighed down by the Iran conflict and higher energy prices.

For income-oriented shareholders, the dividend forecast for 2026 stands at €15.17 per share, offering a concrete anchor as the competitive landscape reshapes. Rheinmetall's shares remain caught between a historic order pipeline and a liquidity squeeze that management promises will ease later this year — while a new state-backed rival prepares to step onto the public stage.