Rheinmetall has a weak quarter. Why are US and German banks betting on its shares?

Quarterly financial results of Rheinmetall, Germany's main arms manufacturer, turned out to be weaker than forecasts and brought down its stock price. JPMorgan and Berenberg Bank urged clients to ignore the defense company's disappointing quarter and wait for the situation to improve by the end of the year.

Rheinmetall's growth rate slowed in the second quarter of 2025 amid delays in new orders related to the change of German government, the armored vehicles, artillery and ammunition maker said in a quarterly report. Although the order book reached record €63 billion in the first half of the year, the second-quarter financial results were slightly below market expectations, the Financial Times noted.

The company's shares crashed 7.2 percent in Frankfurt trading, later recovering some of the losses.

Rheinmetall explained that delays in the adoption of Germany's budget after the elections, coupled with the NATO summit at the end of June, led to the postponement of new arms purchases until the second half of the year, despite commitments by NATO member states to increase defense spending to 5% of GDP. The company reiterated its forecast for sales growth of 25-30% for the year, as well as an expected operating margin of 15.5%. The concern promised to update that estimate once the situation with new contracts becomes clearer.

Wall Street's largest bank, JPMorgan, called Rheinmetall's weak second quarter "irrelevant to the investment case" and still expects the company to significantly raise its guidance at the end of 2025, Bloomberg writes. Another major Wall Street player, investment bank Jefferies, is waiting for data on the number of Leopard 2 tanks, Boxer fighting vehicles and other armored vehicles Germany intends to buy, the news agency reports. 

German bank Berenberg, one of the world's oldest banks, said that despite Rheinmetall's stock price collapsing after the report was published, "the long-term outlook for [the company] remains strong due to a significant acceleration in order intake in the defense segment,"

Rheinmetall's capitalization has risen more than 2000% in the last five years. The defense company's stock is expensive and risky right now, but a comparison with its competitors shows it has upside potential, confirms Germany's leading business newspaper Handelsblatt. Rheinmetall needs strong profit growth to justify its current high valuation, and that's exactly what's happening now. If Germany's defense budget is increased to 5% of GDP as planned, the group could receive orders worth hundreds of billions of euros, the publication stresses.

According to Handelsblatt's calculations, by buying Rheinmetall shares now, an investor is paying about 90 times the annualized earnings projected for the coming year. That's more expensive than in the case of U.S. IT companies. But if you take the expected earnings over the next four quarters as a basis, the P/E ratio for Rheinmetall drops to 49. Even more important than these ratios is the dynamics themselves: the "overpayment" for the company's stock is quickly being reduced by the expected sharp earnings growth, said the article.

That outlook is the main reason why Rheinmetall, despite its high valuation, has the best rating of any major defense company in both Europe and the U.S.: 18 of 22 analysts recommend buying its stock, three advise holding it in a portfolio, and only one suggests selling,

This article was AI-translated and verified by a human editor