Rheinmetall's Record Backlog and New Alliances Fail to Impress the Market

Rheinmetall shares struggle 25% below peak despite a record €63B order backlog, strong 2024 targets, and a 42% dividend hike. Analysts see a buying opportunity.

Despite showcasing a formidable order book and announcing a key strategic partnership, Rheinmetall's shares continue to struggle. The German defence contractor's stock, trading around €1,480, remains roughly 25% below its record high from last September, creating a stark disconnect with its robust operational performance.

The company is currently making a significant showing at the Hannover Messe industrial fair. For the first time, it has established a dedicated "Defence Production Park," highlighting unmanned systems and robotics for harsh environments. CEO Armin Papperger is using the platform to discuss technological independence and European procurement, bringing industry and military representatives together. Beyond the exhibition halls, the company is advancing concrete projects. Its joint venture, Rheinmetall Kraken GmbH, has initiated series production of the "Kraken K3 Scout" maritime surface drone in Hamburg, with an initial output of around 200 units per year. The company states technical scaling to up to 1,000 units is possible at any time.

Financially, the Düsseldorf-based group is on solid ground. Its order backlog has reached a record level exceeding €63 billion. For the current fiscal year, management is targeting sales of up to €14.5 billion with an operating margin approaching 19%. Crucially, over 90% of the targeted annual revenue is already covered by existing orders, providing exceptional planning security.

Shareholders are set to benefit directly from this strength. The board has proposed a significantly higher dividend of €11.50 per share for the upcoming Annual General Meeting, a 42% increase from the previous year. Meanwhile, the company is pursuing strategic diversification. A newly announced partnership with UK-based ITM Power aims to develop a European network for synthetic fuels.

Analysts are largely dismissing the current share price weakness, viewing it as a technical consolidation after previous years' massive rally. Bernstein Research maintains an "Outperform" rating with a fair value estimate of €2,050. Berenberg is even more bullish, recommending the stock as a buy with a €2,100 price target, citing Rheinmetall's unrivalled market leadership in ammunition and barrel artillery.

From a chart perspective, the situation remains tense. The share price has broken below all key moving averages and is trading noticeably under its 200-day line, with a gap of almost 15%. It fell a further 2.75% to €1,436 on Tuesday, bringing its year-to-date loss to over 10%. Technically, the stock must now defend support at €1,400 to avoid a test of the year's low at €1,357.50. A sustained breakout above the €1,750 mark is needed to improve the technical picture meaningfully.

The next potential catalyst is scheduled for May 7th, when Rheinmetall will release its first-quarter figures. Until then, the tension between the company's fundamental strength and its market valuation is likely to persist.