Rheinmetall’s €64bn Order Book Can’t Stop the Bleeding: All Eyes on Q1

Rheinmetall shares trade 22% below peak despite €64B backlog and record orders, as market demands proof of execution on margins and cash flow.

The arithmetic looks simple on paper: a defence contractor with nearly €64 billion in orders, a 36% jump in its backlog, and a management team targeting €14.5 billion in revenue this year. Yet Rheinmetall’s shares closed May Day at €1,341.20 — a full 22% below the February peak and fresh off a 12-month low touched just days earlier. The disconnect between operational momentum and market sentiment has rarely been starker.

What explains the paradox? Partly it is valuation. At a price-to-earnings multiple of roughly 35, the stock already trades at a premium that leaves little room for disappointment. Partly it is a shift in what investors demand. Record order intake alone no longer moves the needle. The market wants proof of execution — margins, cash conversion, delivery speed — and the coming days will provide the first major test.

The Numbers That Should Be Working

The Düsseldorf-based group has been on a contract-signing spree. Just last week, it secured deals worth well over €5 billion, including a €1.04 billion Bundeswehr order for additional infantry systems under the IdZ-ES programme, nearly €1 billion for two light corvettes and two diving support vessels to be built at its Mangalia shipyard in Romania, and further multi-billion-euro awards in the armoured vehicles segment.

Management expects full-year 2026 revenue to reach as high as €14.5 billion, representing organic growth of around 30%. Nine-tenths of that target is already covered by existing contracts. Analysts forecast earnings per share of €39.61 — a roughly 166% increase year-on-year. The dividend proposal of €11.50 per share, up from €8.10 last year, will go to a shareholder vote at the virtual annual general meeting on 12 May.

Where the Skepticism Creeps In

JPMorgan analyst David Perry sees the recent sell-off as overdone, maintaining a €2,130 price target and arguing that fears over a potential Ukraine ceasefire or shifts in military doctrine driven by drone technology are being exaggerated. Goldman Sachs has the stock on its European Conviction List with a €2,300 target, while Jefferies raised its own to €2,220 in April. The consensus implies more than 44% upside from current levels.

Yet a specific concern has taken root. Management has guided for free cash flow conversion of above 40% of EBIT. Analysts had been modelling 70% to 90%. That gap — between what the company says it can generate in cash and what the Street had expected — has weighed disproportionately on the valuation. The Q1 report due on 7 May must provide clarity on whether the lower conversion rate is a temporary feature or a structural constraint.

Strategic Expansion Continues

While the stock treads water, the management team has been broadening the group’s footprint. Following the carve-out of the automotive division, Rheinmetall is now a pure-play defence contractor. The acquisition of NVL has pushed it deeper into naval shipbuilding. A new partnership with Boeing Australia aims to offer the Bundeswehr the MQ-28 Ghost Bat unmanned combat aircraft by 2029, marking a push into airborne systems.

For the full year, management is targeting an operating margin of around 19%. If the first-quarter numbers confirm that trajectory, selling pressure should ease. The Q1 release lands on 7 May, followed five days later by the AGM where the stepped-up dividend will be put to a vote.

The Broader Sector Context

Rheinmetall is not alone in facing this scrutiny. Across the defence sector, the bar has been raised. MTU Aero Engines delivered a clean set of first-quarter numbers — adjusted revenue up 7% to €2.2 billion, operating profit up 6% to €320 million, and a cash conversion rate of 77% — and saw its shares rise a modest 1.53% in response. The market rewarded execution, not promises.

For Rheinmetall, the week beginning 7 May represents a concentrated cluster of catalysts: quarterly results, a shareholder meeting, and the dividend ex-date all within days. The order book is full. The question is whether the cash flow story can catch up.