Rheinmetall’s €73bn Backlog Can’t Mask the Pain of a 59% Earnings Miss

Rheinmetall hits 52-week low after 59% earnings miss and JPMorgan downgrade, despite record €73bn order backlog and ambitious naval expansion.

The defence sector is living through a curious paradox. Order books are bulging, backlogs are hitting records, and governments across Europe are scrambling to rearm. Yet investors are punishing even the smallest missteps with ruthless efficiency. Rheinmetall finds itself at the sharp end of that dynamic.

The Düsseldorf-based defence group saw its shares tumble more than 10% on Friday, closing at €1,207.20 — a fresh 52-week low. The trigger was a first-quarter earnings report that fell well short of market expectations, followed by a downgrade from JPMorgan that accelerated the selling pressure.

A 59% earnings miss that shook confidence

On the surface, the numbers looked respectable enough. Revenue rose 8% year-on-year to €1.94bn, while operating profit climbed to €224m. But analysts had been banking on significantly more. Earnings per share came in at €2.18 — a 59% shortfall against the consensus estimate.

Management pointed to timing issues in revenue recognition and one-off integration costs tied to the newly formed naval systems division, which has only been consolidated for a month. The operating free cash flow turned negative, with an outflow of €285m, which the company attributed to a deliberate inventory build-up and higher capital commitments designed to support the year’s growth targets.

The full-year guidance for 2026 was left untouched. Rheinmetall still expects revenue of €14.0bn to €14.5bn with an operating margin of around 19%. The longer-term ambition of reaching roughly €50bn in sales by 2030 remains firmly in place.

JPMorgan pulls the trigger

The downgrade from JPMorgan came on 8 May, when analyst David Perry stripped away his buy recommendation and slashed the price target to €1,500. He cited reduced short-term visibility on both growth and margins. The market reaction was immediate and brutal.

Not everyone is running for the exits. Deutsche Bank, Berenberg and Kepler have all reaffirmed their buy ratings, with price targets ranging from €1,450 to as high as €2,500. The wide dispersion of those targets reflects the deep uncertainty currently surrounding the stock.

Naval ambitions and cruise missiles take shape

Strategically, Rheinmetall is pushing ahead with an aggressive expansion agenda. The new naval systems division brings with it a portfolio of live projects worth €5.5bn. A joint venture with Dutch firm Destinus is advancing plans to produce cruise missiles, with production expected to begin in late 2026 or early 2027.

The total order backlog has swelled to €73bn — a gain of more than 30% compared with the previous year. The company is positioning itself as a European full-service defence house, spanning ammunition, tanks, warships and missiles. The vision is impressive. The challenge is execution.

The €1,200 line in the sand

Technically, the stock is now testing the psychologically important €1,200 level. Since the start of the year, Rheinmetall shares have lost nearly a quarter of their value. If the price breaks below its current year-low in the coming week, further technical selling could follow.

All eyes will be on Tuesday’s virtual annual general meeting, where chief executive Armin Papperger is expected to flesh out the strategy for working through the massive order book. After the recent rout, management is under pressure to address growing concerns about the speed of operational delivery.

A sector-wide pattern of punishment

Rheinmetall is far from alone in feeling the heat. Across the defence sector, a remarkable disconnect has opened up between fundamentals and market sentiment. Renk saw its shares fall nearly 5% on Friday to €49.00, despite posting a record first-quarter order intake of €582.3m and a backlog of €6.9bn. The book-to-bill ratio stood at 2.1 — meaning more than two euros of new orders came in for every euro of revenue.

DroneShield, the Australian counter-drone specialist, delivered record customer receipts of A$77.4m in the first quarter, up 360% year-on-year, and has a cash position of A$222.8m. Its shares are trading near their 50-day moving average. Airbus, meanwhile, is grappling with a different set of problems: its civil aviation division is suffering from the fallout of the Iran conflict, with several Middle Eastern and Asian airlines pausing discussions on new orders. Deliveries in the first quarter fell to 114 aircraft from 136 a year earlier.

Execution is now the only metric that matters

The structural investment case for European defence stocks remains intact. Global military spending has hit a record $2.9 trillion, and Europe’s rearmament drive is a multi-year cycle, not a short-term blip. But the market has shifted its focus. The question is no longer whether enough contracts are coming in — it is whether companies can deliver on them fast enough.

Rheinmetall’s €73bn backlog is a testament to its market position. But a 59% earnings miss is a reminder that ambition and execution do not always move in lockstep. Until the cash conversion story becomes visible in the quarterly numbers, the stock may continue to trade at a discount to its long-term potential.