Citi Research opened coverage of German defence manufacturer Rheinmetall on Tuesday with a "neutral" rating and a target price of €1,480 per share. The brokerage said the stock, trading at €1,369 at the time, appears roughly fairly valued under its base case, implying about 8.1% upside in the share price and a 9.1% total expected return when a 1% dividend yield is included.
The analyst framed the core valuation debate succinctly: "peak ammunition or not? Determines whether fair value ~Eur1,500 or Eur1,900-2,100." Citi’s base case falls below both ranges at €1,480.
Valuation framework
Citi divides its valuation into two primary pieces. The Weapons and Ammunition division is valued at €330 per share based on a discounted cash flow using a 9% weighted average cost of capital. That segment’s model assumes the Ukraine conflict ends in 2028, is followed by five to ten years of stockpile rebuilding, and then a sharp reduction to training-only demand at roughly 5-6% of the observed peak production capacity.
The remainder of the business - Vehicle Systems, Digital, Air Defence and Naval - is valued collectively at €1,146 per share. For that block, Citi applies a 28% profit compound annual growth rate (CAGR) to 2031, an 8% CAGR to 2035, and a 3% terminal growth rate thereafter.
Ammunition cycle assumptions
Citi lays out a three-stage sequence it sees governing ammunition demand: active conflict consumption, a post-war phase of stockpile replenishment, and a peacetime training phase. The brokerage highlights a significant ramp-up in European 155mm production capacity as part of the backdrop: roughly 300,000 rounds annually before February 2022, about 2 million currently, and an anticipated further ramp to roughly 3 million over the next three to five years.
On observed usage rates, Citi estimates Russia fired roughly 8.4 million artillery rounds per year between August 2023 and April 2025, an average of about 23,000 rounds per day. The research note also references current RUSI estimates that place Russian daily consumption at 10,000-17,000 rounds per day, a decline that Citi attributes in part to the increased use of FPV attack drones.
Under Citi’s long-run modelling, once stockpiles have been rebuilt, long-run artillery demand for Rheinmetall is modelled at approximately 85,000 rounds per year, around 5-6% of peak capacity.
Financial projections
Citi’s group-level forecasts show sales rising from €9.94 billion in 2025 to €14.31 billion in 2026E, €18.10 billion in 2027E and €22.94 billion in 2028E. Adjusted EBIT is modelled at €2.63 billion in 2026E, €3.44 billion in 2027E and €4.59 billion in 2028E.
Core earnings per share are projected at €39.96 in 2026E, €51.67 in 2027E and €68.32 in 2028E. The implied price-to-earnings multiple is 34.3x on 2026E EPS, declining to 20x by 2028E. Free cash flow to shareholders is estimated at €2.46 billion in 2026E and €2.87 billion in 2028E.
Scenario analysis
Citi presents a bull and bear range around its base case. The bull case values Rheinmetall at €1,910 per share and assumes the Weapons and Ammunition business runs at peak capacity in perpetuity with 100% cash conversion. The bear case comes in at €1,135 per share and assumes only one year for stockpile rebuild, 80% cash conversion and a 3% profit CAGR from 2031-2036.
The firm also identifies four upside risks to its central thesis: ammunition product lines other than 155mm could behave differently than modelled; the Naval division could achieve revenues of €5 billion by 2030 versus Citi’s €2.5 billion projection, in which case Citi estimates this would add about €115 per share; materially stronger near-term free cash flow could arrive from customer advances; and the market could continue to price Rheinmetall on an assumption of uninterrupted growth through 2030.
Rheinmetall is listed on the Frankfurt exchange under RHMG.DE and had a market capitalisation of €63,737 million in Citi’s note.