Rheinmetall plumments 19%; defense stocks fall on Germany warship plans
Shares of defense companies took a nosedive on Wednesday following reports that Germany has decided to cancel plans for constructing six warships. This news has raised concerns among investors that the anticipated increase in government spending on defense may not materialize as expected.
According to several sources, Berlin is scrapping the F126 frigates project, which was set to be one of the largest warship contracts since World War II. Instead, Germany will purchase eight smaller Meko A-200 frigates from the German company TKMS.
Rheinmetall, a major German munitions manufacturer and a key recipient of government contracts, saw its stock plummet by as much as 19% during midday trading, marking its worst performance since 1989. In contrast, TKMS experienced a 13% increase in its stock value.
Rheinmetall was poised to lead the F126 frigate program in a deal worth up to 12.8 billion euros pending approval from the budget committee. This contract was supposed to be transferred from Dutch shipyard Damen Naval after substantial delays.
Other defense stocks also took a hit, with Hensoldt and Renk, listed on the German stock exchange, dropping by 3.9% and 5.9% respectively. Meanwhile, Saab from Sweden, Leonardo from Italy, and BAE Systems from the UK experienced varying declines in their stock prices.
Despite the setbacks, the Stoxx Europe Aerospace & Defense ETF only traded 1.5% lower, indicating a mixed reaction from the market.
Defense stocks have had a tough 2026 so far.
The decline in European defense stocks this year reflects the growing pessimism around defense companies. Investors are considering the potential conclusion of conflicts in Ukraine and the Middle East, and are questioning the realization of government commitments to military spending.
Rheinmetall’s stock has dropped approximately 30% from its peak in January leading up to Wednesday’s trading session.
The potential overhaul of the F126 program represents a setback for Rheinmetall and Germany’s defense goals. Germany aims to establish the “strongest conventional army in Europe” by 2039 and plans to acquire a 40% stake in tankmaker KNDS, set to go public alongside France.
A year ago, NATO allies agreed to raise defense spending from 2% to 5% of GDP by 2025 following pressure from Washington.
Despite recent challenges, European defense stocks have enjoyed significant growth in recent years, driven by expanding order backlogs and soaring valuations.
Analysts suggest that Rheinmetall’s naval targets may be impacted by the F126 loss, potentially falling short of the projected 5 billion euros by 2030. Citi’s Charles Armitage predicts a lower figure for the business unit, estimating total group sales of 37 billion euros.
While the news has caused some turbulence, the valuation remains stable according to Armitage, who maintains a Buy rating on the shares.
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