Rheinmetall's Record Backlog and a State-Backed IPO: Two Forces Pulling the Stock in Opposite Directions

Revenue miss and negative cash flow in Q1 2026 trigger analyst downgrades; KNDS IPO and macro headwinds add pressure on Rheinmetall shares.

Rheinmetall can point to a €73 billion order book — its biggest ever — yet its shares have lost almost a quarter of their value since the start of the year. That disconnect is starkly illustrated by the chasm between two major bank targets: UBS has slashed its price target by 27% to €1,600, while Barclays remains anchored at €2,035. On Thursday, shares slid 1.9% to €1,213.60, and have since slipped further to around €1,210 — a level roughly 40% below the 52-week high near €2,000.

The first-quarter results did little to reassure investors. Revenue rose 7.7% to €1.94 billion, falling short of market expectations of around €2.3 billion. Operating profit climbed 17% to €224 million, and earnings per share improved to €2.42 from €1.92 a year earlier. The real drag, however, was cash flow: the company reported a negative operating free cash flow of €285 million. The explanation is structural — large orders are scheduled for delivery in the second half, forcing Rheinmetall to build inventory in the interim, tying up cash without generating corresponding revenue.

The analyst community has responded with sweeping cuts. UBS, while maintaining its "Buy" rating, lowered its target from €2,200 to €1,600. Analyst Sven Weier argued that the current share price already discounts no further growth in the ammunition business beyond 2026 and has priced out the Boxer armored vehicle. JPMorgan went further, trimming its target from €2,130 to €1,500. Barclays stands alone with a €2,035 target, underscoring the degree of uncertainty surrounding the stock.

Compounding the near-term pressure is the impending initial public offering of KNDS, the German-French tank manufacturer behind the Leopard 2 and Panzerhaubitze 2000. The German government has agreed to take a 40% stake in KNDS, matching France's holding, and the IPO is scheduled for June or July 2026 at a valuation of €18 billion to €20 billion. The two states plan to reduce their stakes to 30% each over time, but for now a government-backed, publicly traded rival will be competing directly in Rheinmetall's core market.

Meanwhile, the company has not been idle on the strategic front. It is reported to be interested in acquiring Iveco’s defense unit (IDV), which is being carved out from its parent. Iveco itself is reportedly in talks with India's Tata Group. Other potential bidders for IDV include Leonardo, KNDS and CSG. Closer to home, Rheinmetall has teamed up with Deutsche Telekom to develop a protection system for critical infrastructure against drones and sabotage — a sign that the group wants to expand beyond tanks and ammunition. Management has reaffirmed its full-year guidance, targeting revenue of €14.0 billion to €14.5 billion and an operating margin of roughly 19% in 2026.

All this unfolds against a deteriorating macroeconomic backdrop. The Bundesbank expects the German economy to stagnate in the second quarter of 2026, weighed down by the Iran conflict and higher energy prices. For Rheinmetall, the key question remains how quickly the €73 billion backlog can be converted into actual revenue. If the second-half delivery schedule holds, the negative cash flow from the first quarter should prove temporary — and the bearish analyst calls may come under pressure. In the meantime, the stock has at least one concrete anchor: analysts forecast a dividend of €15.17 per share for the full year 2026.