This analysis was originally published as a stock note by Morningstar Equity Research.
Key Morningstar Metrics for Rheinmetall AG
- Fair Value Estimate: EUR 2,220
- Morningstar Rating: ★★★★
- Morningstar Economic Moat Rating: Wide
- Morningstar Uncertainty Rating: Medium
What We Thought of Rheinmetall AG’s Earnings
Wide-moat Rheinmetall RHM reported group backlog rising 56% year on year to EUR 62.6 billion, supported by EUR 11 billion in new nominations. Management confirmed that around EUR 55 billion of framework agreements—mainly from Germany—are actively converting into firm contracts, providing over four years of visibility. Revenue rose 46% year on year to EUR 2.31 billion, almost entirely from organic defense growth, while defense margins reached a first-quarter record of 11.5%.
We maintain our fair value estimate while recognizing upside risk from accelerated policy momentum. In a recent discussion with NATO Secretary-General nominee Mark Rutte, Rheinmetall’s CEO indicated European defense spending could reach 3.5% of GDP by 2029, ahead of our 2032 assumption. Management also sees potential for a 30% long-term market share capture, versus our current 23% forecast.
Vehicle systems nearly doubled revenue year on year to EUR 952 million, driven by tracked and tactical vehicle deliveries and initial contribution from Loc Performance in the US. Imminent contract conversions are expected in Italy (Panther), Romania (Lynx), and Germany (Puma Lot 2). Weapons and Ammunition posted EUR 599 million in sales and a 19.3% margin, supported by strong demand for 155mm artillery and tank rounds.
Electronic solutions grew 50% year on year, driven by Skynex, Skyranger, and digitization orders from Germany and Taiwan. Margins were temporarily diluted by F-35 ramp-up costs.
Power systems remained margin-dilutive, but civil sites in Berlin and Neuss are being retooled for defense output, unlocking underutilized capacity.
Rheinmetall Forms JV With Lockheed Martin
Moreover, Rheinmetall formed a 60%-owned joint venture with Lockheed Martin LMT to establish a sovereign European production base for precision-guided tactical missile systems, addressing US supply lead times of over 10 years. Full production ramp is expected by 2029 with up to EUR 5 billion in annual revenue potential.
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