Rheinmetall Is Close to Its Worst Day Since 1989: Why Have European Defense Stocks Plummeted?
Analysts at Mwb Research described the decline in the stock price of Rheinmetall, a beneficiary of German government contracts, as excessive
Germany's decision to scrap a large-scale warship-building project sent Rheinmetall's stock plummeting / Photo: Spech / Shutterstock
Shares of European defense companies fell on Wednesday, June 24, following news that Germany would abandon plans to build six warships. This heightened investors’ concerns that contractors’ expectations of increased revenue from rising government spending may not be fully realized, according to CNBC.
Details
Shares of the German defense conglomerate Rheinmetall, the main beneficiary of German government contracts, fell 19% during trading on June 24, marking the sharpest intraday drop since April 2025, according to Bloomberg. The company is on track for its worst single-day performance since 1989, according to FactSet data cited by CNBC.
Berlin plans to cancel the multibillion-euro F126 frigate construction project, the Financial Times reports, citing two sources familiar with the situation. It was set to be the largest order for military ships since World War II. Instead, German authorities will purchase eight smaller Meko A-200 frigates from another German manufacturer, TKMS AG & Co, the publication reports. Against this backdrop, TKMS shares rose 12%.
Rheinmetall was set to become the lead contractor for the F126 program. The deal, which was awaiting approval from the German parliament’s budget committee, was valued at up to €12.8 billion ($14.5 billion), according to the FT.
Shares of other defense companies listed on the German stock exchange—Hensoldt and Renk—also fell by 5% and 6.5%, respectively, on the back of this news. Shares of Sweden’s Saab fell 3.1%, Italy’s Leonardo dropped 4.5%, and British giant BAE Systems lost 1.7%. The pan-European Stoxx 600 blue-chip index fell by a symbolic 0.03% during trading.
What does this mean for the industry?
A revision of the F126 program would be a serious blow to both Rheinmetall and Germany’s defense ambitions, as Berlin has pledged to build “the strongest conventional army in Europe” by 2039, according to CNBC. These steps were taken amid a notable decline in European defense stocks since the start of the year. Investor sentiment toward the sector has deteriorated due to expectations of a possible end to the conflicts in Ukraine and the Middle East, as well as doubts about how much of the announced military spending by governments will actually be implemented, the network notes.
In addition, scrapping the project would mean a write-down of approximately €2 billion ($2.3 billion) for Rheinmetall, according to Morgan Stanley analysts led by Marie-Ange Riggio. Their opinion is cited by Bloomberg. In a broader context, this move undermines market confidence in the transparency and predictability of German defense procurement, the experts added. “This is definitely negative news. The potential cancellation of the contract came as a complete surprise, especially given that Rheinmetall was confident the agreement would be signed before the summer break,” Riggio said.
Should I buy Rheinmetall stock?
Jens-Peter Rick of the research firm Mwb Research lowered his price target for Rheinmetall shares from €1,450 to €1,400 following news of the cancellation of the F126 project, warning that “the canceled program does not support the company’s [Rheinmetall’s] ambitious forecasts.” His target price is 20% higher than the closing price on June 23. However, the analyst reaffirmed his “buy” recommendation for the defense company’s shares, citing “valuation and insider confidence,” according to MarketScreener.
Against the backdrop of Rheinmetall’s stock decline, Mwb Research noted that the sell-off was “excessive,” as “the underlying thesis of an upward cycle in the defense sector” remains valid, and the naval segment accounts for less than 10% of Rheinmetall’s revenue, according to MarketScreener.
Most analysts covering the defense conglomerate's stocks recommend buying them—18 out of 20. Two recommend holding the stocks in their portfolios.
Since the beginning of the year, Rheinmetall’s stock has fallen by nearly 40% following a series of lackluster financial reports and amid a shift in investor capital away from the land systems segment toward drone and air defense manufacturers, Bloomberg notes. According to the agency’s estimates, the company has lost about €28 billion in market value this year.
This article was AI-translated and verified by a human editor
