Rheinmetall price target lowered to €2,080 by BofA Securities on FX impact

BofA Securities has marginally lowered its price target for German defense contractor Rheinmetall (ETR:RHMG) to €2,080 from €2,085, attributing the adjustment to foreign exchange fluctuations while reiterating its 'Buy' rating and largely unchanged financial estimates. Despite anticipating slower sequential growth in the Weapons & Ammunition segment for Q2 due to prior revenue pull-forward and a factory incident, BofA maintains confidence in Rheinmetall meeting its 2025 guidance, projecting accelerated order intake from September and strong second-half free cash flow driven by pre-delivery payments.

Analysis

BofA Securities has made a marginal adjustment to its price target for Rheinmetall AG (ETR:RHMG), lowering it to €2,080 from €2,085, while reaffirming its 'Buy' rating. This revision is attributed solely to foreign exchange movements, with the firm's fundamental financial estimates remaining largely intact. For the upcoming second quarter, BofA forecasts sales of €2.55 billion and an operating profit of €308 million, though it anticipates a sequential slowdown in the key Weapons & Ammunition division due to a combination of revenue pull-forward into the first quarter and the operational impact of a factory explosion at its Murcia facility. Despite these near-term headwinds, the outlook remains constructive. BofA believes Rheinmetall is on track to meet its 2025 guidance, supported by a significant acceleration in order intake anticipated from September onward, which is projected to bolster free cash flow in the second half through pre-delivery payments. Further catalysts include expected updates on joint ventures with Lockheed, Anduril, and Indra in the Q2 report.

Key Decisions for Investors

• The minor price target reduction should be viewed in the context of foreign exchange adjustments rather than a weakening fundamental outlook, given the maintained 'Buy' rating and stable core estimates.
• Investors should anticipate potential near-term softness in Q2 results, particularly in the Weapons & Ammunition segment, but focus on the more significant forecast for accelerating order intake and strong free cash flow in the second half of the year.
• Monitor the upcoming Q2 earnings report for specific updates on the progress of strategic joint ventures and management's commentary on the H2 order pipeline, as these are key catalysts for the investment thesis.