Rheinmetall dubbed Europe’s hottest stock as Bernstein starts coverage at €1,960

Investing.com -- Rheinmetall AG (ETR:RHMG), the German defense group whose market value has surged twentyfold since the start of the war in Ukraine, was described by Bernstein Research as “the hottest stock in Europe” as the brokerage initiated coverage with a “market-perform” rating and a price target of €1,960. 

“From a boring industry to the hottest stock in Europe,” Bernstein said, highlighting Rheinmetall’s transformation from an auto and defense supplier into the continent’s largest defense company. 

Since February 2022, the stock has climbed more than 2,000%, the best performance among European defense peers.

Bernstein credited the company’s “first mover advantage” in expanding capacity for short-cycle products such as ammunition and ground vehicles. 

Rheinmetall increased its annual production of 155mm artillery shells from 70,000 in 2022 to 750,000 in 2024, with a target of 1.5 million by 2027. 

Ammunition now accounts for 27% of group sales and 52% of profits. Vehicle systems contribute 36% of sales and 28% of profits, while Electronic Solutions, covering radar, air defense and digitalization, delivers 17% of sales and 14% of profits.

The surge in demand has reshaped Rheinmetall’s finances. Revenues rose from €9.8 billion in 2024 to an estimated €12.8 billion this year, with Bernstein projecting €16.8 billion in 2026, a 31.4% compound annual growth rate. 

EBIT is forecast to grow even faster, from €1.3 billion in 2024 to €2.9 billion in 2026, a 46.5% CAGR. 

Adjusted earnings per share are projected to more than double from €17.83 in 2024 to €39.78 in 2026. The stock trades at a forward price-to-earnings multiple of 73.3 in 2025 and 49.7 in 2026.

“Winner keeps winning,” Bernstein said, noting Rheinmetall’s ability to secure contracts before rivals. 

The company captured close to half of Germany’s €100 billion defense fund and is expected to remain a major beneficiary of NATO countries’ rearmament and inventory replenishment. Germany alone accounted for 30% of Rheinmetall’s 2024 sales.

Still, the brokerage cautioned that the medium-term outlook is less certain. “Longer-term, we worry about a gradual shift of focus away from ground combat, as capacity increases and inventories replenish,” the analysts said. 

Demand for munitions could fade once replenishment is complete or if a cease-fire in Ukraine is reached, they warned.

Bernstein pointed to the need for Rheinmetall to pivot toward long-cycle opportunities such as advanced weapons, drones and air defense. 

Its Electronic Solutions unit was described as the “crown’s jewel” within the portfolio, but the transition will require time and investment.

While praising Rheinmetall’s dominant market share and superior profitability, Bernstein concluded the stock is already “priced for perfection.”

At a valuation 10% above European peers, the firm said the upside is limited. “The easy money has been made and stock picking matters,” the report said, citing BAE Systems as offering a more attractive risk-reward profile.