Rheinmetall Shares See Price Target Trimmed Despite Strong Backlog and Naval Expansion

Rheinmetall AG shares (ETR:RHM) experienced renewed volatility this week, falling 8% on Wednesday before recovering 2% to trade at €1,551.50 today, as markets digested full-year results that fell marginally short of expectations despite record revenues and profitability.

The German defense contractor now faces a wave of analyst reassessments, with several investment banks trimming price targets while maintaining positive ratings on the stock.

Jefferies analyst Chloe Lemarie reduced her price target on Rheinmetall to €2,020 from €2,060, though she retained a Buy rating on the shares. The firm acknowledged that fiscal year results came in slightly below market expectations, triggering the sharp Wednesday selloff. However, Lemarie emphasized that the mid-term outlook remains solidly underpinned by a substantial order backlog, and noted that the current valuation appears increasingly attractive. Rheinmetall now ranks among Jefferies’ most attractively priced defense names based on 2028 earnings projections.

The company reported consolidated sales of €9.9 billion for fiscal 2025, representing a robust 29% increase year-on-year. Operating profit reached a record €1.84 billion, up 33% from the prior year. Despite these impressive headline figures, markets reacted negatively to forward guidance that disappointed on two key metrics. Rheinmetall projected an operating profit margin of approximately 19% for 2026, marginally above the 18.5% achieved in 2025 but below the 19.6% consensus estimate. More significantly, the company’s forecasted free cash flow conversion of over 40% of operating profit fell well short of market expectations ranging from 70% to 90%.

Bernstein analyst Adrien Rabier also adjusted his outlook, lowering the price target to €2,000 from €2,050 while maintaining an Outperform rating. The revision reflects a broader sector correction impacting companies with exposure to Ukrainian military support and short-cycle defense products. Despite a significant three-month decline in the share price, Bernstein views the current valuation as overly pessimistic given robust demand dynamics and substantial backlogs in both the Ammunition and Vehicle divisions.

The strategic landscape shifted dramatically with Rheinmetall’s completion of the Naval Vessels Lürssen acquisition on February 27, marking a transformative expansion into naval capabilities. This transaction immediately added €5-6 billion to the company’s backlog, with potential additional orders from German Navy programs F126 and F127 estimated at approximately €12 billion during 2026. The naval business is expected to contribute €1.3-1.5 billion in consolidated sales over a ten-month period in 2026, with aspirations to reach €5 billion in annual sales by 2030 at margins exceeding 15%.

Looking ahead, Rheinmetall has outlined ambitious growth targets, forecasting 40-45% sales growth in 2026 to reach between €14 billion and €14.5 billion. This optimistic projection is underpinned by heightened global defense spending driven by ongoing conflicts in Ukraine and the Middle East. The company’s order backlog reached a record €63.8 billion, up from €46.9 billion the previous year, with expectations to more than double to approximately €135 billion by year-end.

The stock currently trades at a price-to-earnings ratio of 82.74, reflecting market concerns about valuation levels relative to near-term growth visibility. Questions remain about Rheinmetall’s ability to scale production rapidly enough to fulfill its expanding order book, particularly as the company integrates its naval acquisition and ramps up ammunition and vehicle manufacturing capacity.

The Wednesday selloff and subsequent modest recovery suggest markets are recalibrating expectations around the pace of margin expansion and cash generation, even as the fundamental growth story remains intact. With multiple analysts maintaining positive ratings despite trimmed price targets, the current share price may present an entry point for investors willing to look beyond near-term execution concerns toward the company’s strengthening position in European defense rearmament.