Key Morningstar Metrics for Rheinmetall
Analyst: Loredana Muharremi
- Fair Value Estimate: EUR 2220.00
- Morningstar Rating: ★★★★★
- Economic Moat: Wide
- Morningstar Uncertainty Rating: Medium
We are raising our fair value estimate for wide-moat Rheinmetall RHM to EUR 2,220 from EUR 1,310, reflecting refinements in our assumptions regarding spending increases by country and the share allocated to equipment.
We maintain our European defense spending projections, reaching 3.2% of GDP by 2030 ($876 billion) and 3.5% by 2032, before stabilizing around 3%. While equipment spending has averaged 28% of total budgets over the past four years, reaching 30% in 2024, we see this as insufficient to address decades of underinvestment. In the midterm, we expect Europe to prioritize inventory replenishment, with equipment spending rising to 50% of budgets in 2025-26 and 40% from 2027-30, before declining to 25% by 2034 as personnel and R&D investments grow. This aligns with Rheinmetall’s simulation discussed during the 2024 earnings call.
Rheinmetall Stock vs. Morningstar Fair Value Estimate
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Rheinmetall to Capture Bulk of German Defense Spending
We have raised our estimate for Germany’s defense spending to 3.5% by 2029-30, averaging 3% in the midterm. While Rheinmetall previously captured around 45% of Germany’s defense increase, we assume a 45% capture rate for the special fund and 30% for broader defense increases, lower than the current rate but consistent with historical trends.
This would create a cumulative $1.8 trillion opportunity in equipment spending by 2030, with Germany leading the increase. Germany is undergoing a major defense spending shift, with Parliament set to vote on a proposal that would exempt defense spending above 1% of GDP from debt limits, effectively removing any cap on future military budgets. Additionally, Germany is proposing a EUR 500 billion special fund, with EUR 200 billion earmarked for defense.
For the rest of Europe, we apply a 20% capture rate to rising equipment budgets, excluding France, where Rheinmetall has little presence. This results in EUR 360 billion in captured equipment spending by 2030, or around 21% of the European market, aligning with Rheinmetall’s own estimates of EUR 300 billion-EUR 400 billion and 20%-23% market share.
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