Rheinmetall's Stock Soars on Impressive Q1 Earnings Surge

After the German defense company announced higher-than-expected preliminary earnings for the first quarter, which surpassed market expectations, Rheinmetall’s stock price went up.

The shares increased by 5.9%, reaching €1,419 in late morning trading in Frankfurt, marking a surge of 131% for the year so far.

Following the close of trading on Monday, the firm reaffirmed its annual forecasts and reported that preliminary aggregate sales for the initial quarter amounted to 2.305 billion euros ($2.63 billion), marking a rise of 46% compared to the previous year. Notably, within these figures, revenues from the military division surged by 73%.

The operating profit increased by 49% to reach 199 million euros. Notably, the operating profit from the defense business jumped approximately 96%.

Hamburg-based Berenberg Bank analysts George McWhirter and Lavinia Norton noted that Rheinmetall's revenues surpassed consensus estimates by 18%, and their operational profits exceeded market projections by 20%.

The robust performance in the initial quarter can be attributed mainly to a shift in timing, with certain aspects of the firm’s defense operations being moved up from the subsequent quarter, according to Deutsche Bank analysts. They also noted this might suggest reduced expansion for the period stretching from April to June.

Rheinmetall also supported its annual predictions, expecting the group's revenue to increase by 25% to 30%, with an operating margin of approximately 15.5%.

Nevertheless, experts anticipate that the firm will raise its annual predictions in the upcoming months as soon as European countries offer more details about their future defense expenditure strategies.

At NATO's upcoming annual summit scheduled for June 24-25 in The Hague, Netherlands, all 32 member nations are anticipated to pledge to meet an updated defense expenditure objective.

Jefferies kept Rheinmetall as their top choice in the defense sector.

"Although the stock experienced a minor retreat due to recent discussions about ceasefires in Ukraine, this report supports our stance that Rheinmetall will benefit most from the increased defense expenditures," noted Jefferies analysts Chloe Lemarie and Ben Brown in an investor update.

Send your correspondence to Cristina Gallardo. cristina.gallardo@wsj.com

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