Rheinmetall’s €2.4bn Drone Deal and JPMorgan’s Bullish Call Can’t Fully Erase the 52-Week Low

Rheinmetall shares hit a fresh low near €1,340 despite a €63B backlog and expected German defense budget hike, as high valuation and cash flow concerns weigh on sentiment.

The disconnect between Rheinmetall’s booming order book and its beleaguered share price has rarely been starker. The defence giant’s stock touched a fresh 52-week trough of around €1,340 on Tuesday, only to stage a modest recovery the following morning. By Wednesday mid-session, the shares had clawed back roughly 1.5 percent to trade near €1,360, buoyed by a JPMorgan note that called the recent sell-off a buying opportunity.

Analyst David Perry at the US bank is betting on a significant fiscal tailwind. He expects Germany’s upcoming defence budget to rise by approximately 21 percent, a move that would funnel billions more into the sector. That prospect, combined with Rheinmetall’s already bulging pipeline, has prompted Perry to flag the current valuation as attractive.

The company’s operational momentum is hard to argue with. Revenue hit nearly €10 billion in the last financial year, and management is targeting a further jump of up to 45 percent in the current period. The order backlog stands at a hefty €63 billion, providing rare visibility. For 2026, the group aims for sales of as much as €14.5 billion, with nine-tenths of that volume already locked in by firm contracts.

Yet the market remains deeply cautious. The stock has shed more than 16 percent since the start of the year and now trades a full 20 percent below its 200-day moving average. The culprit is valuation: with a price-to-earnings ratio north of 43, Rheinmetall shares are pricing in years of future growth, leaving them acutely vulnerable to any hint of disappointment.

The latest evidence of demand came in the form of a framework agreement with the Bundeswehr for loitering munitions — essentially autonomous drones. The deal has a total potential value of up to €2.4 billion, with an initial call-off worth around €300 million. Delivery of the systems, which will be manufactured in Neuss, is scheduled to begin in the first half of 2027.

Beyond its core business, Rheinmetall is pushing into new territory. Serial production of the Kraken unmanned surface vessel has started at the Blohm+Voss facility in Hamburg. The company is also laying the groundwork for a rocket-systems joint venture with Destinus, expected to launch in the second half of the year.

But the expansion comes at a cost. To guard against supply-chain bottlenecks, Rheinmetall has stockpiled critical components worth roughly €8 billion. That inventory build is tying up capital and weighing on cash flow. Meanwhile, production of military trucks is being ramped up from 600 to 4,500 vehicles annually, a tenfold increase that requires heavy upfront investment.

All eyes are now on May 7, when the board releases first-quarter results. Analysts will scrutinise profitability in particular. The full-year target is an operating margin of around 19 percent, and any sign that the goal is slipping could renew selling pressure. Shortly after, the virtual annual general meeting will vote on a dividend proposal. One source puts the planned payout at €11.50 per share, which would mark the fourth consecutive increase; another analyst estimate points to €15.40. Either way, the outcome will be closely watched.

For now, the stock is caught between a record order book and a punishing valuation. Whether the first-quarter numbers can bridge that gap — and whether the Bundeswehr’s drone contract and JPMorgan’s endorsement can provide lasting support — will determine if the 52-week low marks a floor or just another waypoint on a longer descent.