Rheinmetall's Transformation: Europe's Defense Powerhouse

David Mitchell

Welcome back, everyone, to another episode of Global Equity Research—brought to you by the research arm of Softgate Capital. I’m David Mitchell, and I’m here with my co-host, Emily Carter. If you’re new, we break down the stories driving the world’s most important companies—offering institutional-grade insights at a price that retail investors can actually afford. Everything we discuss comes from the full reports at research.softgatecapital.com, so check that out if you want the full deep dive. Today, we’re talking Rheinmetall—it’s the name on everyone’s lips in European defense right now.

Emily Carter

Absolutely! I’m excited for this one, David. Rheinmetall’s story is wild—founded way back in 1889, right? And for the longest time, they kind of had this dual identity. They were always Germany’s big defense company, but also super active in automotive—making piston engine components, power systems, all that jazz. Today they’re headquartered in Düsseldorf with, wow, about 28,000 employees worldwide.

David Mitchell

Right, huge scale. And what’s crucial is that the company’s been shedding its civilian side. Defense—meaning tanks, munitions, electronics—now makes up, depending how you slice it, about 80 to 85 percent of their revenue. The Power Systems segment, which is all the legacy auto stuff, it’s basically on the chopping block. They’re in the process of selling it off.

Emily Carter

And the market is loving this transformation. We’re talking a share price that was around 100 euros in 2022. Fast forward to late 2025 and, boom, 1,500 euros. That’s turbocharged, thanks to everything happening in Europe right now. I mean, this is like “Aston Martin on growth hormones”—if anyone remembers our car deep-dive from a few episodes back, ha!

David Mitchell

Yeah, and you can see the retail investor enthusiasm. So, hypothetically, if we had an executive here—I wish, maybe next time—we’d want to ask: “What really drove Rheinmetall’s gutsy move to exit automotive and go all-in on defense?” I think the short answer is: margins and political tailwinds. But let’s get into what’s behind all that, because the strategic positioning is everything right now.

Emily Carter

So, there’s this word flying around—Zeitenwende—which I keep stumbling over, by the way, David—can you say it?

David Mitchell

Ha, Zeitenwende. I think that’s close enough. It means a turning point. Basically, after Russia’s invasion of Ukraine, Germany and other NATO countries literally flipped the switch and started pouring money into defense. Germany created a 100 billion euro special fund—like, overnight. And finally hit their 2 percent of GDP defense spending that NATO’s always wanted.

Emily Carter

Which, for Rheinmetall, is huge because they’ve always been Germany’s go-to supplier. So, they’re suddenly front and center on every contract: armored vehicles, tactical trucks, artillery shells, air defense, military electronics. Their product line fits exactly what everyone is desperate for right now.

David Mitchell

And on partnerships, they’re not just sitting at home. They’re doing joint production on the KF41 Lynx IFV with Hungary, building a new factory in Ukraine, jumping into ammunition with partners in India, and they bought Spain’s Expal to expand ammo capacity and get into the southern European markets. Next up, they’re acquiring the naval business from Lürssen—that’s Blohm+Voss—for a play on shipbuilding. They’re going truly multi-domain now: land, air defense, and soon, sea.

Emily Carter

It’s seriously impressive how Rheinmetall’s combining this breadth with some real technological edge. Everyone knows the main battle tank—the new KF51 Panther is Rheinmetall’s big bet on next-generation platforms. The Skynex air defense system and their soldier electronics are catching a lot of buzz too. Another thing that’s clever, by the way, is their revenue model—when you sell vehicles you’re also getting the future orders for ammo and service contracts. So sales aren’t just one-and-done deals, it’s this built-in lifetime value thing.

David Mitchell

Exactly! The dual stream—equipment sales plus consumables or upgrades—makes it a sticky business. And the big takeaway: Rheinmetall isn’t just Germany’s arms maker, they’re aiming to be Europe’s “defense champion,” with deep roots but also a growing international footprint.

David Mitchell

Alright, let’s shift gears and talk about the numbers—because the “explosive” part of Rheinmetall’s story is backed up by some, well, explosive financials. Through 2022, Rheinmetall was doing okay, hovering just over 6 billion in annual sales. In 2023? That jumps to over 7.1 billion. By 2024, revenue rockets to nearly 9.8 billion. If you trust the company’s own guidance, they’re forecasting 12.2 to 12.7 billion for 2025. So that’s a near doubling in just two to three years.

Emily Carter

Operating profit tells the same story. It climbs from just above 900 million in 2023 to almost 1.5 billion in 2024. Operating margin expands to 15.2 percent. And, get this—if you strip out the lagging Power Systems side, defense is running at around a 19 percent margin. That’s world-class for heavy industry!

David Mitchell

And the growth’s not peaking yet—the updates from Q3 2025 show 7.5 billion in sales in just the first nine months. That’s up 20 percent year-on-year, and management’s reaffirmed their full-year forecast of 25–30 percent sales growth. Earnings per share has already topped last year’s full numbers: 8.34 euros per share in nine months, versus 16.5 for all of 2024. They’re on track to break 20 euros EPS for full-year 2025. The cash generation is also robust. Cash flow before capex hit over a billion in 2024, and they ramped capital expenditures to 766 million—mostly for new capacity. Despite all this spending, the balance sheet stays healthy, and they even juiced the dividend to 8.10 euros per share.

Emily Carter

It just seems like every metric is moving in the right direction. And what you hinted at, David, is so important: the story is about operating leverage. The faster those defense orders scale, the more profit drops through. We haven’t seen that kind of margin and earnings step-change in, well, almost any “industrial” sector outside maybe rare earths—and we literally covered that in episode five!

Emily Carter

Now, let’s unpack where all those profits are coming from. Rheinmetall breaks out its performance by four main divisions. If you’re an earnings geek—honestly, this is kind of fun.

David Mitchell

Okay, so Vehicle Systems is the biggest by revenue—3.79 billion euros in 2024. That’s trucks, tanks, IFVs, all the heavy kit. Margin is decent at 11.2 percent—not outstanding, but given the scale and capital intensity, it’s healthy. And usually, vehicle programs start out lower margin and ramp as contracts mature.

Emily Carter

Weapon and Ammunition is where the magic really happens. That division pulled in 2.78 billion in sales but delivered 790 million in operating profit—a killer 28.4 percent margin. So, although it’s about 28 percent of sales, it is hands-down the biggest driver of profitability. Not every day do you find a legacy “industrial” business with tech-like margins, right?

David Mitchell

Yeah, that’s right. Electronics Solutions comes in third. They do air defense, soldier comms, simulators. 1.73 billion sales, with a margin of 12.6 percent for 2024—and it’s growing, especially as they scale up work on programs like air defense and digitalization of the Bundeswehr. It’s maybe a sleeper growth driver once some early-stage R&D spend normalizes.

Emily Carter

Exactly. And then you get to Power Systems—that’s the drag. Sales of just over 2 billion, margins a weak 4.2 percent, and, honestly, negative momentum. It’s basically there till they close the divestiture. Once they sell, Rheinmetall should lose the dead weight and group margins will jump even more. It’s a classic pivot story—a little bit like what we saw in our episode on Ubisoft, cleaning up shop for the next growth act.

David Mitchell

Let’s make sense of what all those fundamentals mean for the equity story—because, spoiler, Rheinmetall trades at nosebleed multiples. As of late 2025, trailing P/E is around 90x, and forward P/E is close to 52x, using our EPS forecast for next year. EV/EBITDA is about 28x. Normally, you’d look at that and say: “No way.” But the PEG ratio, which tries to capture how much you’re paying for growth, is only about 1.0 to 1.2. That’s because consensus is modeling nearly 50 percent annual EPS growth through 2027. So the high multiple “burns off” in two, three years if they execute.

Emily Carter

I always mix up PEG math, but I think you nailed it—if the company delivers on that growth, you’re not, like, overpaying. Peer-wise, Rheinmetall’s valuation is way above even U.S. defense juggernauts. BAE is closer to 22 forward P/E, Thales 19, Lockheed and Northrop down at 15 to 17. Rheinmetall has less current revenue than any of them, but investors are betting on the “catch-up” story—that Rheinmetall will close the scale gap over the next five years and then some.

David Mitchell

Exactly, and our DCF backs up the premium, at least directionally. If you model a 22 percent revenue CAGR out to 2030, margins lifting to nearly 20 percent, and an 8.5 percent discount rate, you get an equity value that more or less supports a bullish case—though, honestly, the market is already anticipating a nearly perfect execution. Our price target is €2,200, and we’ve got it rated Overweight. But, full disclosure, that is predicated on sustained execution, ongoing order momentum, and the company managing the divestiture cleanly.

Emily Carter

So, this is definitely a “priced for perfection” story—similar to what we saw with HCA back in our healthcare episode. It’s a rare pure-play on European defense renaissance, which investors seem desperate for, but any stumbles could mean a sharp correction. Just gotta stay realistic and keep an eye on the quarterly numbers.

Emily Carter

So, let’s not get lost in the hype—there are risks that could upend the whole thesis. First and foremost, this is a company super-exposed to European defense budgets. If the geopolitical backdrop cooled off drastically—say peace in Ukraine or budget reversals—demand could dry up, and contract pipelines would get thin in a hurry.

David Mitchell

Exactly. And not just demand, but execution risk too. They’re ramping up across so many programs—vehicles, ammunition, naval stuff, new joint ventures in Ukraine and Hungary. Any slip-up, like delayed deliveries or cost overruns, could spook investors fast, especially given the sky-high valuation. There’s also the Power Systems sale—if that drags on or they get a poor deal, it could dull the “pure play” narrative and weigh on margins.

Emily Carter

Don’t forget about regulatory and political filters. Germany’s arms export controls can be really tough. A turn in public opinion, or a new government less keen on rearmament, could crimp export approvals. Also, supply chain swings, inflation, or even high-profile competition—especially from U.S. contractors or rising European rivals—those can threaten the edge that Rheinmetall has built up in land systems and munitions.

David Mitchell

Now, for catalysts—there’s a whole list. New German contracts, more European order momentum, the definitive sale of Power Systems, and, of course, quarterly earnings beats. Also, if the naval business acquisition closes and they announce initial wins there, it could really broaden investor excitement. If I could ask a policy expert right now—which, maybe next season—we’d want to know: will Rheinmetall’s expansion into naval or fresh export markets reshape the balance of Europe’s defense industry? Because if that works, it opens up a whole new growth leg, not just a one-off spike.

Emily Carter

Totally agree. The fundamental question from here is: can Rheinmetall convert its backlog to realized sales smoothly? And will it keep winning in new domains, or does competition and politics eventually catch up? Those are the pieces we’ll be watching each quarter.

Emily Carter

Alright, let’s wrap it here. Rheinmetall’s truly transforming itself: from a mid-sized, diversified industrial into a bona fide European defense powerhouse. They’re poised for sustained growth but, again, this story is priced for near-flawless execution. If you want to track this transformation, watch the quarterly updates on backlog, divestiture progress, and contract wins—those are the canaries in the coal mine.

David Mitchell

Couldn’t have said it better. Remember to download our full Rheinmetall report—it’s packed with even more analysis and is available in the episode description or directly at research.softgatecapital.com. And just a reminder, everything we discuss here is for informational purposes only—it is not investment advice, an offer, or a solicitation to buy or sell securities. Sources are believed reliable, but no guarantees on completeness or timeliness, folks!

Emily Carter

We hope you found this deep dive useful. We’ll be back soon with more equity research spotlights. David, always great chatting through this with you!

David Mitchell

Always a pleasure, Emily. Thanks to everyone for tuning in—see you next time!

Emily Carter

Take care, everybody!