'Wartime demand' drives Rheinmetall shares 📈 The company raised forecasts

10:46 AM 26 January 2023

The shares of Germany's largest defense conglomerate Rheinmetall (RHM.DE) are gaining more than 3.5% today. The company has raised sales forecasts and is pushing Berlin asking for more big orders. Last year, the conglomerate earmarked €700 million to expand production capacity in preparation for a plan to strengthen Germany's army. Sentiment was also improved by Germany's agreement to deliver Leopards to Ukraine:

  • Germany's decision may favor new orders for tanks, also from European countries that intend to transfer them to Ukraine from their own reserves. A company spokesman said Rheinmetall could deliver 139 Leopards to Ukraine if needed. The company is targeting a profit margin of at least 10% from each tank;
  • Rheinmetall manufactures Leopard tanks, Marder vehicles, trucks, ammunition and air defense systems, among other products;
  • CEO Armin Papperger indicated in an interview with Stern that he expects sales to nearly double to between €11 billion and €12 billion in 2025, up from €10 billion to €11 billion estimated in November. Approximate sales in 2022 were around €6.5 billion;
  • According to Papperger, investment plans should be made quickly, and Chancellor Scholz's plan to modernize the German military must begin this year;
  • Germany has earmarked a total of €100 billion to put the army back on track after a languishing arms sector since the 1990s;
  • UBS last week downgraded Rheinmetall to "neutral" from "buy" because medium-term defense spending is already factored into the stock and further growth depends on the consistency of the German government, which so far has not translated into an order list. The stock has gained 170% in the past year despite declines in the DAX index.

Rheinmetall (RHM.DE) shares, D1 interval. The stock is heading toward historical highs, with the RSI signaling an initial overbought level. In case of a larger correction, the first support level is the 23.6 Fibonacci abolition of the upward wave started in December 2021. Source: xStation5

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