Rheinmetall AG: A great defence company to consider About the company
Rheinmetall AG is a holding company, which engages in the provision of development and sale of components, systems, and services for the security and civil industries. It operates through the following segments: Vehicle Systems, Weapon and Ammunition, Electronic Solutions, Sensors and Actuators, Materials and Trade, and Others. The Vehicle Systems segment offers a diverse portfolio of vehicles, including combat, support, logistics, and special vehicles. The Weapon and Ammunition segment includes products and solutions for threat-appropriate, firepower as well as comprehensive protection. The Electronic Solutions segment is involved in the chain of effects in the system network, from sensors and the networking of platforms and soldiers to the automated connection of effectors, as well as solutions for protection in cyberspace. The Sensors and Actuators consists of a product portfolio with exhaust gas recirculation systems, throttle valves, control dampers, and exhaust flaps for electromotors, solenoid valves, actuators and valve train systems, oil, water, and vacuum pumps for passenger cars, commercial vehicles, and light and heavy-duty off-road applications, as well as industrial solutions. The Materials and Trade segment focuses on the development of system components for the basic motor.
Summary of business
Next earnings: Wednesday 12th March 2025 (Full year 2024 results)
Given the latest developments, Europe needs to be able to defend itself against Russia or any other enemies, with or without the United States. Invasion by Russia will remain a key risk for the foreseeable future to Europe and it needs to move fast and arm itself. For now, Europe’s first priority is to continue supporting Ukraine – Ukraine’s experienced military is currently the most effective deterrent against a Russian attack on the EU due to its experience on the battle ground. If Ukraine decides that a US-Russian deal to end the war is unacceptable Europe needs to step in first. A recent example is when the United States cut off military intelligence to Ukraine, prompting the United Kingdom to step in and provide intelligence support instead. Should the United states, continue to pull out of Ukraine, we expect Europe to quickly fill up the gaps.
We expect European defence spending and capabilities to continue growing for the next number of years. As a result, we see opportunity for Rheinmetall. Rheinmetall is well positioned to benefit from the increase in budget allocations towards defense, especially as Germany is expected to play a key role in Europe’s defence as US military support declines. Since Europe is coming from an economic crisis, spreading costs over time looks like a feasible route Europe will take for this. Rheinmetall has a well-diversified portfolio across geographies and platforms, with 70% of its revenue from its defense business and 30% from its civil one. Escalating global security concerns are driving higher growth in the defence market as many countries in Europe have underspent over along time. European nations are expected to boost defence budgets to a minimum of 2% of gross domestic product, a trend likely to accelerate due to the Russia-Ukraine war. This situation offers a significant opportunity for Rheinmetall to benefit from its well-diversified geographical presence and product portfolio.
On Thursday 06th March 2025, European Union (EU) leaders convened in Brussels for an extraordinary summit focused on defence and Ukraine, amid growing concerns over Europe’s security architecture and its financial underpinnings. The summit takes place in the wake of Washington’s abrupt suspension of military aid to Ukraine, placing increased pressure on the bloc to enhance its own defence commitments. During the meeting European Commission President Ursula von der Leyen said the 27 EU leaders are “determined to ensure Europe’s security and to act with the scale, the speed and the resolve that this situation demands. We are determined to invest more, to invest better and to invest faster together.” She added “These are extraordinary times. They call for extraordinary measures. With REARM Europe, we'll equip our Union with the capabilities it needs to support Ukraine and defend itself”. This reinforces the fact that more money will flow towards the defence industry and will more likely benefit Rheinmetall.
The EU’s executive arm expects around 650 billion euros ($702 billion) to be unlocked through this initiative over the next four years. Even if only 30% of that trickles down to Rheinmetall each year — about 48 billion euros — it would more than triple the company’s current revenue. This makes the stock a strong buy from the current price with a price target of EUR 1800.
Rationale for
As the capacity leader in ammunition production, the company is well-positioned to capitalize on surging demand through long-term framework contracts lasting up to 10 years.
Its strong incumbent role in the European Strategic Safety Initiative and the F-35 Lightning II fighter jet program — two of the largest air defence projects — will drive sustained production and revenue growth for decades.
Risks to consider
Rheinmetall's sales heavily rely on military funding, making its revenue stream inherently political and subject to uncertainty.
Geopolitical risks and shifting alliances may restrict the company's ability to deliver products to certain countries like the USA which is a big market.
Despite earnings growth, global defence stocks, including Rheinmetall, face persistent valuation pressure due to rising ESG-driven constraints on investment mandates.
Revenue by country
Europe: EUR3.40B
German: EUR1.72B
Asia: EUR817.00M
Other regions: EUR642.00M
North, middle and South America: EUR594.00M
