Rheinmetall's €73bn Pipeline Can't Shield It from Analyst Cuts and a State-Rival IPO

Rheinmetall shares fall 2% as UBS and JPMorgan slash targets, state-backed KNDS IPO looms, and Q1 revenue misses estimates. Record €73bn backlog fails to offset headwinds.

Rheinmetall's stock is caught in a tug-of-war that pits a record €73bn order backlog against a series of punishing headwinds — a disappointing first quarter, sweeping analyst target reductions, and the looming initial public offering of a government-backed competitor. The shares slid 2.04% on Thursday to €1,211.80, marking a third consecutive session in which the resistance zone between €1,235 and €1,240 failed to break. At this level, the stock sits 39% below its 52-week high of €1,995 and has shed roughly 24% since the start of the year, with a twelve-month decline exceeding 32%.

The immediate trigger for the latest sell-off was a steep cut in the UBS price target, slashed from €2,200 to €1,600, though the bank maintained its "Buy" rating. Analyst Sven Weier argued that the current share price already prices in no further growth in the ammunition business beyond 2026 and has fully discounted the Boxer armoured vehicle programme. JPMorgan went further, lowering its target from €2,130 to €1,500. Barclays, by contrast, held firm at €2,035, highlighting the wide dispersion in analyst views as the market digests mixed signals from the group.

Adding to the pressure is a structural shift in the competitive landscape. The German government has agreed to take a 40% stake in KNDS, the Franco-German maker of the Leopard 2 tank and Panzerhaubitze 2000, with France also holding 40%. An IPO is pencilled in for June or July 2026, valuing the company at €18bn to €20bn. Over time, both governments plan to reduce their holdings to 30% each, but in the near term a state-backed, publicly listed rival will step directly into Rheinmetall's core market. The first-quarter numbers did little to reassure: revenue of €1.94bn fell well short of the roughly €2.3bn the market had expected, with operating profit reaching €224m and earnings per share of €2.42 (against €1.92 a year earlier).

The defence group is not standing still. Since the first quarter of 2026 it has consolidated a new "Naval Systems" segment after acquiring stakes in Lürssen, adding €5.5bn in orders and turning Rheinmetall into a full-spectrum supplier for all three branches of the armed forces. It has also struck a partnership with Deutsche Telekom to develop a digital drone-protection shield that combines sensor technology with secure communications networks. Rumours persist of interest in Iveco's defence arm (IDV), which is being carved out for sale, with Leonardo, KNDS and CSG also circling.

Management is sticking to its 2026 guidance: organic revenue growth of 28% to 31%, sales between €14bn and €14.5bn, and an operating margin of roughly 19%. Historically, 64% of annual revenue comes in the second half, making the second quarter a crucial proving ground. The Bundesbank, meanwhile, expects the German economy to stagnate in the second quarter, weighed down by the Iran conflict and rising energy prices. For shareholders, a projected dividend of €15.17 per share offers at least a concrete anchor, even as the competitive landscape reshapes around the company. On the technical side, the RSI has climbed to 87.8, signalling an overbought condition after the recent recovery from the year's low of €1,118 — meaning the next attempt on the €1,240 resistance will have to be backed by solid operational momentum, not just relief buying.