Rheinmetall’s €1.94bn Quarter Was Solid Enough — But the Market Saw a 59% Earnings Gap

Rheinmetall posts solid Q1 revenue growth but shares hit 52-week low after JPMorgan downgrade and EPS miss of 59% vs consensus, despite €73B order backlog.

The Düsseldorf-based defence group delivered first-quarter revenue of €1.94 billion, an 8% improvement on the prior year, and operating profit climbed 17% to €224 million. The operating margin ticked up to 11.6%. Earnings per share rose from €1.78 to €2.18. On paper, the numbers look respectable. But the market’s reaction was brutal.

Shares plunged more than 10% on Friday to close at €1,207.20 — a fresh 52-week low. The weekly loss exceeded 11%, and the year-to-date decline now stands at nearly 25%. The stock sits roughly 40% below its September peak of €1,995. The sell-off was triggered by a JPMorgan downgrade on 8 May, which cut the rating from Overweight to Neutral and slashed the price target from €2,130 to €1,500.

The disconnect between operational performance and market reception is stark. Analysts had expected earnings per share of around €5.30, according to consensus estimates. The actual figure of €2.18 came in roughly 59% below that — a miss that overshadowed the top-line growth.

Management attributed the shortfall to timing differences in revenue recognition and one-off integration costs from the newly formed Naval Systems division, which has only been consolidated for one month. That unit brings with it a portfolio of ongoing projects valued at €5.5 billion. The group is also pushing ahead with a joint venture with Dutch company Destinus to manufacture cruise missiles at its Unterlüß facility in Lower Saxony, with production slated to begin in the second half of 2026 or early 2027.

The order book stood at €73 billion as of 31 March, up roughly 30% year-on-year — a cushion that provides multi-year visibility. The group reaffirmed its full-year guidance of €14.0 to €14.5 billion in revenue with an operating margin of around 19%, and has set a long-term target of roughly €50 billion in sales by 2030.

But the market is punishing execution risk. The operating free cash flow came in at minus €285 million, which the company explained as a deliberate build-up of inventories to support the planned revenue growth for the full year. That is a classic growth pattern — cash out first, revenue later — but it tests investor patience in a sector where quarterly delivery is now the dominant concern.

JPMorgan was not alone in adjusting its view. While Berenberg and Kepler reaffirmed their buy recommendations, the price target range across the analyst community has widened to between €1,450 and €2,500 — a spread that reflects the current uncertainty around timing and margin delivery.

The next key date for shareholders is the virtual annual general meeting on 12 May 2026, where a proposed dividend of €11.50 per share for the 2026 financial year will be put to a vote — a sharp increase from the €8.10 paid the previous year. The ex-dividend date would be 13 May, with payment on 15 May.

The broader defence sector is experiencing a similar pattern. Renk, which reported a record first-quarter order intake of €582.3 million and a backlog of €6.9 billion, saw its shares fall nearly 5% on Friday to €49.00 — close to its 52-week low. Airbus, meanwhile, is grappling with delivery delays tied to Pratt & Whitney engine issues and panel quality problems, while the Iran conflict has prompted several Middle Eastern and Asian carriers to pause discussions on new aircraft orders.

For Rheinmetall, the structural investment case remains intact. European rearmament is a multi-year cycle, not a short-term impulse. The group’s ambition to become a full-range defence supplier — spanning ammunition, tanks, warships and cruise missiles — is impressive. But the 59% earnings miss shows that ambition and quarterly execution do not always move in lockstep. The market is now demanding proof that the backlog can be converted into cash flow at the pace that the valuation once implied.