Increasing EU And NATO Spending Will Spur Modern Armored Solutions

Key Takeaways

• Long-term revenue and earnings growth is likely to vastly exceed analyst expectations, driven by robust order intake, ramping joint ventures, and rising defense budgets.
  
• Strategic expansion into automation, AI, and new defense domains positions Rheinmetall for higher margins, market share, and resilience against sector cycles.
  
• Heavy reliance on European defense spending and slow civilian diversification expose Rheinmetall to political, investor, compliance, and technological risks that threaten future profitability and growth.

Catalysts

Provides mobility and security technologies worldwide.

• Analyst consensus assumes that Rheinmetall's backlog and order intake potential is robust, but the CEO's commentary suggests this is drastically understated-contract conversion rules allow for a 50% upsizing over headline figures, and imminent funding decisions across Europe could push order backlog above €100 billion, with possible further upside and multi-year planning security, strongly supporting long-term revenue visibility far beyond current analyst models.
  
• Whereas analyst consensus sees €5 billion in annual missile JV sales with Lockheed as only incremental, management's guidance indicates not just rapid ramp-up but an ability to address massive unmet U.S. and European demand, achieve margin parity or superiority to leading competitors, and vertically integrate critical components, positioning Rheinmetall to rapidly surpass current forecasts for earnings and group margins in the late 2020s.
  
• Accelerated government procurement timelines and sharply rising defense budgets towards or even above 3.5% of GDP in Germany (potentially €150 billion annually) and similar moves by Italy, Romania, and other NATO members set up an environment for multiple years of outsized top-line growth-especially as Rheinmetall's market share in European ammunition, armored vehicles, air defense and digitization could crest 30-50%, driving group revenues well above consensus-implied trajectories.
  
• Repurposing civil manufacturing plants to defense, compounded by large-scale automation and artificial intelligence integration, unlocks a step change in manufacturing capacity and efficiency gains-this transformation supports a structurally higher production ceiling at lower incremental cost, further boosting operational leverage and likely raising sustainable group net margins.
  
• Strategic moves far beyond consensus expectations-including direct expansion into space-based surveillance with ICEYE, competitive U.S. presence via Loc Performance, and future M&A/tie-ups with digital and cyber-defense innovators-diversify Rheinmetall's addressable market into next-generation and non-traditional defense domains, setting the stage for multi-year, above-trend earnings growth and resilience against civil automotive cyclicality.

Rheinmetall Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Rheinmetall compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Rheinmetall's revenue will grow by 42.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 8.0% today to 13.7% in 3 years time.
• The bullish analysts expect earnings to reach €4.1 billion (and earnings per share of €88.41) by about August 2028, up from €839.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 34.7x on those 2028 earnings, down from 89.6x today. This future PE is lower than the current PE for the GB Aerospace & Defense industry at 102.9x.
• Analysts expect the number of shares outstanding to grow by 4.98% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.54%, as per the Simply Wall St company report.

Rheinmetall Future Earnings Per Share Growth

Risks

• Rheinmetall's heavy dependence on defense spending in Europe, particularly Germany, exposes it to significant revenue risk if political sentiment shifts toward peace or fiscal austerity and defense budgets are reduced or reprioritized.
  
• The growing influence of ESG-focused and anti-militarization investors could restrict Rheinmetall's access to capital and put downward pressure on its valuation, ultimately limiting future balance sheet flexibility and raising its cost of capital.
  
• Although the company touts strong organic and acquisition-driven growth, repeated references to the civilian business being flat and minimally profitable demonstrate slow diversification; this overreliance on defense could compress margins and increase earnings volatility if core customer demand weakens.
  
• The company faces increasing technological risk, as the sector accelerates toward AI-enabled and autonomous defense solutions; if Rheinmetall fails to capture high-value technology/IP, its competitive position and long-term top-line growth trajectory could erode.
  
• Heightened global scrutiny, regulatory complexity, and potential export restrictions could lead to longer lead times, increased compliance costs, and reduced international competitiveness, adversely impacting future international order intake and operating margins.

Valuation

• The assumed bullish price target for Rheinmetall is €2300.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Rheinmetall's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €2300.0, and the most bearish reporting a price target of just €1550.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be €30.2 billion, earnings will come to €4.1 billion, and it would be trading on a PE ratio of 34.7x, assuming you use a discount rate of 5.5%.
• Given the current share price of €1641.0, the bullish analyst price target of €2300.0 is 28.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.