Rheinmetall’s €2.4 Billion Drone Deal Fails to Lift Shares From a 52-Week Low

Rheinmetall's shares tumble to €1,341 as record order backlog and €2.4B drone contract clash with market skepticism over valuation and China supply risks.

The Düsseldorf-based defence contractor is firing on all cylinders operationally, but its stock is stuck in reverse. Rheinmetall’s shares tumbled to a new 12-month low of €1,341.20 in late April, a stark contrast to the company’s swelling order books and ambitious growth targets. The disconnect between the factory floor and the trading floor has rarely been wider.

The group has inked a framework agreement with the German armed forces for loitering munitions under the FV-014 programme, worth up to €2.4 billion. An initial call-off worth around €300 million covers approximately 2,500 units, with an option to scale up to more than 10,000 kamikaze drones. The electrically powered systems can engage targets at distances of up to 100 kilometres, are resistant to jamming, and support complex swarm operations. Production will be entirely European, with series deliveries from the Neuss plant slated for the first half of 2027. This marks the third major framework contract for Rheinmetall this year.

Alongside the drone deal, the company is expanding into unmanned naval systems. Series production of the autonomous Kraken K3 Scout surface vessel has begun in Hamburg, developed with a British partner for critical infrastructure protection. The move underscores a broader push into next-generation defence technology.

That technological expansion rests on a solid financial base. Revenue climbed 29% last year to nearly €10 billion, while the order backlog swelled to almost €64 billion. Management is targeting further revenue growth to as much as €14.5 billion by 2026, with an operating margin of around 19%. Revenue visibility from long-term framework contracts stands at over 90%.

Yet the market remains unconvinced. The stock has shed more than 16% since the start of the year and now trades roughly a third below its 52-week high of nearly €2,000. Analysts point to a gap between lofty expectations and the guidance issued. Despite the strong order pipeline, investors are balking at the valuation multiples in the defence sector.

Chief executive Armin Papperger has another headache: reliance on Chinese raw materials. Cotton linters, a critical input for propellant production, are sourced substantially from China. While Papperger insists the company is not pursuing a strict “China-free” policy, Rheinmetall is actively preparing for scenarios where Chinese exports could be cut off. Alternatives in Argentina and Australia have been identified, and the group is investing in its own production capacity for precursor materials. Supply chain reviews are now conducted weekly.

Two key dates loom in May. On 7 May, Rheinmetall will report first-quarter results, with analysts focused on order intake and margin trends. The following week, on 12 May, the annual general meeting will see management propose a dividend of €11.50 per share, which would mark the fourth consecutive increase. Whether the Q1 numbers can shift the mood depends largely on whether order inflows can dispel the scepticism that has weighed on the stock in recent weeks. Series deliveries from the drone contracts are not expected until the first half of 2027, leaving a long wait before the production lines start to justify the current valuation.