Rheinmetall's Twin Headwinds: A 2028 Order Gap and a Naval Rotation Leave the Stock 41% Off Its Peak

The sell-off in Rheinmetall shares this week had two distinct triggers, yet neither had anything to do with the company's underlying operations. On Wednesday, the stock slipped 2.8 percent to €1,177.80, making it the DAX's weakest performer on a day when the benchmark index barely moved, losing just 0.1 percent to sit at roughly 26,100 points. The catalyst was a blunt warning from mwb research, which reiterated its "Sell" rating with a €1,050 price target after calculating that the defence group faces a potential revenue gap beginning in 2028.

The analysis firm's concern centres on the €80.5 billion order book Rheinmetall reported at the half-year mark. According to mwb research, only around €2.4 billion of that backlog can realistically be converted into revenue during 2028 — a figure that stands in stark contrast to the house's own 2028 revenue forecast of €22.63 billion and the market consensus of €25.4 billion. To bridge that chasm, the analysts estimate Rheinmetall would need to secure roughly €65 billion in additional orders by then, a pace of contract wins they consider unlikely to materialise.

The warning landed on the same day the stock was already absorbing the knock-on effects of a sector rotation that had begun the previous session. On Tuesday, Rheinmetall had fallen 2.6 percent to close at €1,180.00, dragged down not by company-specific news but by a reallocation of capital within the defence sector toward naval plays. The trigger was Bernstein Research upgrading competitor TKMS to "Outperform" — a move that sent ThyssenKrupp Marine Systems shares soaring 10.19 percent to €103.80 after the company raised its annual guidance.

TKMS now expects revenue growth of 10 to 12 percent, up from a prior range of 2 to 5 percent, with an adjusted EBIT margin of up to 6.5 percent. Its order backlog stands at €20 billion, underpinned by a contract for four frigates for the German Navy with an option for four more, as well as its position as preferred bidder for up to twelve Canadian submarines valued at over €15 billion. For investors, the signal was unambiguous: money was flowing toward maritime defence names while land systems and air defence specialists like Rheinmetall were left temporarily behind. The pattern had already surfaced on August 13, when Rheinmetall slipped 0.31 percent to €1,164.60 while TKMS advanced sharply.

The rotation arrives at a particularly sensitive moment for Rheinmetall, which is still nursing the wounds from the cancellation of the F126 frigate programme in late June. The German government scrapped the project and instead ordered eight smaller MEKO A-200 frigates from TKMS — a contract that would have been worth more than €12 billion to Rheinmetall. The stock plunged 18 to 20 percent in a single trading session at the time, and CEO Armin Papperger told Defense News he was "very unhappy" about losing the programme.

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The fallout was visible in the half-year results published just over a week ago. Rheinmetall trimmed its full-year revenue guidance to €13.7–14.2 billion from a previous range of €14.0–14.5 billion, though it maintained its operating margin target of around 19 percent. Since then, the share price has stabilised with a modest 0.5 percent gain, but the damage is evident: at current levels, the stock sits 41 percent below its 52-week high of €2,007.00 reached on October 3.

The operational picture, however, tells a rather different story from the share price. Second-quarter revenue surged 69 percent to €3.289 billion, while operating profit jumped 115 percent to €562 million. The order book expanded 44 percent to €80.5 billion, and new business continues to flow: on Monday, the Bundeswehr placed an order worth more than €500 million for 149 mobile rescue stations, drawn from an existing framework agreement with production slated to begin in the first quarter of 2027.

The near-term weakness in the stock, then, stems less from operational problems than from a combination of sector-internal reweighting toward naval assets and scepticism about the sustainability of order intake. mwb research's projections for the coming years — €13.81 billion revenue and €2.62 billion EBIT in 2026, rising to €18.78 billion and €3.75 billion respectively in 2027, and reaching €22.63 billion and €4.52 billion by 2028 — suggest the house sees growth continuing, just not at the pace the market is pricing in.

Against that scepticism stands the broader political backdrop that many other market participants cite as a bullish case for defence stocks. NATO has committed to a target of 5 percent of GDP for defence spending by 2035, with 3.5 percentage points allocated to the core defence budget. Germany plans defence expenditures of €108.2 billion for 2026, rising to €152 billion by 2029. Globally, military spending has already reached $2.9 trillion — the eleventh consecutive record.

Whether those long-term budget commitments translate into major new contracts for Rheinmetall remains the pivotal question. For now, the stock's trajectory reflects a market caught between robust operational momentum and genuine concerns about the durability of the order pipeline. The month-on-month picture offers some solace — Rheinmetall is still up 19 percent over the past month, pointing to a vigorous recovery in recent weeks — but the year-to-date loss of 24 percent and the 25 percent decline on a twelve-month basis underscore how far the shares have fallen from their October peak. Peers including BAE Systems, Thales, General Dynamics, Lockheed Martin and Northrop Grumman traded mixed on Wednesday without showing comparable swings, leaving Rheinmetall's slide very much its own story.