Rheinmetall Earnings: Order Delays Mask Record Backlog and Structural Growth; Fair Value Raised 7%

Key Morningstar Metrics for Rheinmetall

• Fair Value Estimate
  : EUR 2,380
• Morningstar Rating
  : ★★★★★
• Morningstar Economic Moat Rating
  : Wide
• Morningstar Uncertainty Rating
  : Medium

What We Thought of Rheinmetall’s Earnings

Rheinmetall RHM’s 2025 defense sales rose 29% to €9.9 billion, operating profit grew 33% to €1.84 billion, margin expanded to 18.5%. Backlog rose 36% to a record €63.8 billion. Shares shed 8% as 2026 guidance of €14.0 billion-€14.5 billion fell short of consensus near €15 billion.

Why it matters: 2025 sales and 2026 guidance were below expectations, largely as German procurement approvals slowed during the election period and the contract volume overwhelmed the government’s administrative capacity.

• A multibillion artillery contract for 600,000-700,000 rounds was sent back for procedural review, while fourth-quarter vehicle deliveries slipped as the defense ministry lacked capacity for acceptance checks. The Murcia plant accident also cost over €200 million in lost ammunition sales.
• CEO Armin Papperger was clear that nothing was canceled and nothing is at risk. The delays are administrative, and every deferred euro rolls into 2026 and 2027. Adjusting for Murcia and order slippage, underlying defense growth was well above 30%.

The bottom line: Wide-moat Rheinmetall screens as significantly undervalued. We raise our fair value estimate to €2,380 from €2,220 to reflect improved cash flow assumptions as Germany shifts from frame to fixed contracts, and a slightly lower near-term capital expenditure ramp-up as management found investment efficiencies.

• The existing backlog covers about 91% of 2026 guided sales, and 2027 coverage is 50%-66%. Germany is converting frame agreements into fixed contracts carrying 20%-30% down payments on orders, which materially support cash conversion as large contracts like Arminius and the ammunition mega-order are signed.
• Rheinmetall is now a pure-play cross-domain defense group spanning land, air, naval, space, and digital, positioning it to capture demand across NATO restocking and Bundeswehr modernization, with potential upside from Middle East air defense if the Iran war persists.