DAX Final Numbers for Rheinmetall, Alongside Renk and Hensoldt, Indicate Pressure
In a recent development, the stocks of defense conglomerates Rheinmetall, Hensoldt, and Renk have taken a hit, following disappointing second-quarter results and geopolitical uncertainties.
Rheinmetall, a defense giant listed in the DAX, reported second-quarter results that fell short of expectations, leading to a decline of about 5.6% in its share price. Similarly, Renk (WKN: RENK73) and Hensoldt (WKN: HAG000) experienced drops of roughly 6.8% and 4.9%, respectively.
The reasons for this dip are multifaceted. Rheinmetall's Q2 revenue of €2.43 billion missed analyst estimates by about 4%, while its EBIT was 2.6% below expectations, despite year-on-year growth. Profitability declined, and free cash flow was significantly weaker than forecast, partly due to lower advance payments from customers.
Moreover, a "high degree of optimism" had previously been built into Rheinmetall’s share price due to a rally earlier in the year. As a result, investors have been locking in profits after the Q2 miss.
Market concerns about slower order intake amid a defense boom and the potential for Ukraine ceasefire peace talks further pressured defense stocks. The announcement of potential peace talks between Russian President Putin and US President Trump was a key factor prompting the sell-off across European defense stocks, including Rheinmetall, Renk, and Hensoldt.
Despite these setbacks, the long-term outlook for defense stocks, including Rheinmetall, Hensoldt, and Renk, remains strong. Analyst George McWhirter of private bank Berenberg described the quarter as weak, but reaffirmed his price target of 2,250 euros for Rheinmetall. David H. Perry, analyst at US bank JPMorgan, views the quarter for Rheinmetall as in line with expectations.
It's important to note that a correction in defense stocks, including Rheinmetall, Hensoldt, and Renk, is not unusual and could continue. All three stocks are part of the European Defense Index, which declined by about 2% amid these developments. Rheinmetall, in particular, was described as a bellwether for the wider European defense sector during this sell-off.
For more information on the European Defense Index, you can find further details in the provided link. As of midday, Rheinmetall's stock is the biggest loser in the German benchmark index, down nearly five percent, while Renk is among the biggest losers in the MDAX, down 6.2 percent. Hensoldt is also among the biggest losers in the MDAX, down 4.3 percent.
However, any weakness in these stocks is seen by David H. Perry as a buying opportunity, as the long-term prospects for these defense giants remain strong. The upward momentum stalled after reaching an all-time high of 1,944 euros in early June, but whether this marks the beginning of a prolonged correction or a temporary setback remains to be seen.
The disappointing second-quarter results from defense giants like Rheinmetall, Hensoldt, and Renk, coupled with geopolitical uncertainties, have negatively impacted the finance sector, leading to a decline in their share prices. Moreover, despite the setbacks, analysts like George McWhirter of Berenberg and David H. Perry of JPMorgan view the long-term outlook for these defense stocks as strong, potentially making their current dip a buying opportunity for the industry and business community.
