Rheinmetall's €25.3 Billion Backlog Poses a Question: Why Is the Stock Still 43% Off Its Peak?

Rheinmetall posts record H1 results with 39% revenue growth, but F126 cancellation and cash flow concerns keep shares 42% below October highs.

The arithmetic at Rheinmetall is getting harder to reconcile. On one side of the ledger sits a half-year performance that most industrial companies would frame as a career highlight: revenue up 39 percent, operating profit up 74 percent, and an order book swelling past €25 billion. On the other side sits a share price that, despite a 15.93 percent recovery over the past month to €1,151.60, remains 42.62 percent below the record high of €2,007 touched on October 3, 2025. The gap between operational excellence and market skepticism has rarely been this wide — and the company's own guidance cut last week did little to close it.

Record Numbers, Tempered Outlook

When Rheinmetall published its half-year report on Thursday, the headline figures were unambiguously strong. Group revenue climbed 39 percent to €5.227 billion in the first six months, while operating profit jumped 74 percent to €786 million. The second quarter alone saw operating profit surge 115 percent to €562 million, and earnings per share nearly doubled from €4.69 to €8.43 year-on-year.

Yet the same report carried a downward revision to the 2026 revenue forecast, now pegged at €13.7 billion to €14.2 billion. The culprit is not operational weakness but a political decision in Berlin: the cancellation of the F126 frigate program, which wipes out roughly €300 million in expected revenue. The blow was compounded by the fact that Rheinmetall had unveiled its GMF 140 frigate concept just over a week earlier — since that presentation, the stock has shed 4.4 percent. Management nonetheless reaffirmed its margin guidance of around 19 percent for the year, signaling that the rest of the portfolio can absorb the loss.

A Backlog Built on Munitions and Air Defence

The order book tells a more encouraging story. As of June 30, Rheinmetall's backlog stood at €25.274 billion, up 44 percent year-on-year. The growth is anchored in a Romanian ammunition order under the EU's SAFE program, Polish tank ammunition contracts, and artillery systems for Germany. The Weapon and Ammunition division contributed €1.8 billion in revenue, up 33 percent, with operating profit doubling to €280 million.

Air defence is emerging as a particular bright spot. The division's backlog — spanning the Skyranger and Skynex systems — has sextupled to €1.5 billion, while revenue climbed 62 percent to €478 million. Vehicle Systems remains the largest unit with €2.431 billion in revenue, up 28 percent, representing nearly half of group sales and carrying its own backlog of €6.7 billion.

The momentum is not new. In April, the Bundeswehr signed a framework agreement with Rheinmetall for the FV-014 guided missile and drone program, with an initial call-off worth roughly €300 million gross. Deliveries are slated to begin in the first half of 2027, with an optional five-figure number of autonomous reconnaissance and combat drones in the pipeline.

The Cash Flow Conundrum

The strain is visible in the cash flow statement. Operating free cash flow fell to minus €1.616 billion in the first half, compared with minus €631 million in the prior-year period — a deterioration of €985 million. Management attributes the swing to a timing shift in advance payments and ongoing capacity expansion. CEO Armin Papperger has been more direct in interviews, defending the deliberate inventory build-up as essential to meeting delivery guarantees: "We need these goods in our stocks, otherwise it's impossible to grow."

To fund that build-up, Rheinmetall placed €500 million in unsecured senior notes during the second quarter, maturing in 2031 with a 3.375 percent coupon. The home market is also becoming more central to the mix: German customers accounted for 38 percent of first-half revenue, up from 33 percent a year earlier.

Analysts Split, Insiders Buy

The market's response to the mixed signals has been anything but uniform. mwb research downgraded the stock from "Hold" to "Sell" on Thursday, cutting its price target from €1,150 to €1,050, citing reduced visibility beyond 2028 due to higher investment from 2027 onward and expected shifts in German procurement priorities. Other houses remain far more bullish, with targets in the €1,700 to €1,820 range — though those estimates predate the guidance cut and have yet to be updated.

Against that backdrop, insider activity offers a contrarian signal. Over the past three months, five Rheinmetall insiders have bought shares totaling roughly €17.4 million — exclusively purchases, with no sales — even as the stock fell more than a fifth. The pattern suggests that those closest to the company see value where the broader market sees risk.

What Comes Next

Papperger is betting on the land business to offset the naval setback. The Boxer wheeled armored vehicle contract with the Bundeswehr, part of Project "Arminius," is expected to be signed before year-end, with the CEO telling Reuters: "There is absolutely nothing standing in the way." Media reports put the firm order at around €25 billion, with a potential framework agreement exceeding €75 billion; Rheinmetall's share of the initial firm order is estimated at €12.4 billion.

The ATACMS missile cooperation with Lockheed Martin at the Unterlüß plant, announced in July, will take longer to bear fruit. Production is planned for 2027, with first revenues expected only in 2028. Papperger was candid about the timeline: "That won't happen in two years. It will take much longer." Talks to acquire Iveco's military truck division are also ongoing, with a meeting planned with new Iveco chief Lorenzo Mariani after the summer break.

The stock closed Friday at €1,145.40, down 3.60 percent on the week and 42.93 percent below its October peak. The June loss of the F126 contract — which triggered a single-day drop of up to 18 percent and led to the freezing of 900 jobs in naval shipbuilding — continues to weigh on sentiment. For investors, the tension is palpable: a company firing on all operational cylinders, a backlog that keeps compounding, and a share price that behaves as if none of it matters.