Rheinmetall Navigates a Cash Squeeze and a Government-Backed Rival as Q2 Catalysts Loom

Rheinmetall's shares fall 39% from peak despite €73B backlog; Q1 cash flow swings negative, while German state-backed KNDS emerges as rival. Analysts see upside.

Rheinmetall’s stock has shed nearly a quarter of its value since the start of 2026, leaving it at €1,216.40 — a 39% drop from its 52-week peak of €1,995. But the picture is anything but uniform. The defence group holds a record order book of €73 billion and management is promising a wave of fresh nominations worth €20 billion in the second quarter alone, yet investors are wrestling with a cash drain at the operating level and the sudden emergence of a state-anchored competitor.

First-quarter results, released on 7 May, laid bare the tension. Revenue rose 7.7% year-on-year to €1.938 billion, but that fell well short of the €2.3 billion the market had expected. Delayed deliveries were to blame. Operating profit climbed 17% to €224 million, lifting earnings per share from €1.92 to €2.42. The trouble sat on the cash flow line: operating free cash flow swung to negative €285 million, weighed down by inventory accumulation. The group still targets full-year revenue of €14–14.5 billion and an operating margin of 19%, implying a sharp acceleration in the second half.

That acceleration will need to come from a busy pipeline. CEO Armin Papperger, addressing investors at conferences in New York and London on 21 May, outlined €20 billion in expected Q2 nominations, including a Lynx infantry fighting vehicle programme in Romania, a tank programme in Italy, and the F126 frigate contract. The second half brings opportunities worth around €60 billion, encompassing the Arminius programme and Ukraine procurement. The F126 deal alone is a high-stakes negotiation: Rheinmetall is demanding roughly €12 billion from the German government to take over the programme, pushing total costs for the six frigates to about €14 billion. Delivery of the first vessel is now set for 2032, four years later than originally planned, and an industry source has pointed to a possible contract signing before the summer parliamentary recess.

Yet the political landscape shifted sharply on the very same day. The German government agreed to take a 40% stake in KNDS, the rival Franco-German armour maker, matching France’s holding. The remaining 20% is slated for an initial public offering in June 2026, potentially valuing KNDS at up to €20 billion — a move that would cost Berlin as much as €8 billion. Berlin and Paris plan to reduce their stakes to 30% each over two to three years, but the deal creates a direct state-backed rival for Rheinmetall in big-ticket programmes such as the Main Ground Combat System.

Analysts are split on how much this matters for Rheinmetall’s outlook. Barclays’ Afonso Osorio reaffirmed his €2,035 price target and an “overweight” stance, arguing the sector’s recent correction is overdone. He forecasts a 45% jump in Rheinmetall’s operating profit this year, more than double the 19% average he expects for the defence sector. The structural story, he insists, remains intact. UBS’s Sven Weier, while maintaining a buy recommendation, slashed his target from €2,200 to €1,600 on 20 May, citing concerns over Rheinmetall’s future market share in a landscape where state influence is more concentrated. Still, he believes the sell-off has gone too far and that the market is underpricing growth in the ammunition business and contributions from the Boxer vehicle programme.

The stock’s technical picture does little to calm nerves. At current levels, the shares are 14.2% below their 50-day moving average and 26.1% below the 200-day line. The relative strength index stands at 85.6, signalling a short-term overbought condition even as the longer-term trend remains bearish. The 7-day return of +8.24% looks more like a bounce within a downtrend than a durable reversal, given the 30-day decline of 14.8% and the year-to-date loss of 24%.

Rheinmetall’s next chance to reset the narrative comes on 26 May, when the group appears at Deutsche Bank’s European investor conference in Frankfurt. The detailed Q2 numbers are due on 6 August, by which point the market will be looking for two things: a tangible improvement in free cash flow as inventory builds convert into deliveries, and a credible strategy for holding its own against a state-backed KNDS in Europe’s largest defence programmes. Dividends are meanwhile forecast to jump to €15.17 per share from €11.50, with consensus EPS at €38.55 for the full year — a target that will demand a steep operational gear-shift in the months ahead.