By Christoph Steitz
FRANKFURT (Reuters) -Rheinmetall, Europe’s biggest ammunition maker, has overtaken the continent’s top carmaker Volkswagen (ETR:VOWG_p) in terms of market value, in the latest sign of soaring investor demand for defence stocks.
Rheinmetall (ETR:RHMG)’s market capitalisation stood at around 56.6 billion euros ($61.5 billion) as of 1044 GMT, compared with around 55.4 billion euros for Volkswagen, reflecting the diverging fortunes of automakers and weapons manufacturers.
Defence stocks across Europe have sky-rocketed in recent weeks, driven by the continent’s efforts to ramp up military spending in response to U.S. pressure and policy shifts.
Rheinmetall stock has been one of the biggest beneficiaries, more than doubling in value since the beginning of the year and rising more than twelve-fold since Russia’s full-scale invasion of Ukraine in February 2022.
"We have seen a clear paradigm shift in Europe around defence spending," Jefferies analysts wrote on Thursday. "This has been triggered by the risk of the U.S. removing support to Ukraine in the ongoing war and also the perception of its protection granted to Europe being at risk, especially in the context of a potential conflict with Russia."
The brokerage initiated coverage on European defence stocks, rating Rheinmetall a "buy" and its top pick. It also rated smaller peer Renk as a "buy" while giving an "underperform" rating to Hensoldt. Those stocks were up 4.5% and down 1.6%, respectively.
Rheinmetall said on Wednesday it expected sales to surge 25% to 30% this year, after coming in slightly under 10 billion euros in 2024, adding it would update its outlook to take into account recent developments in the war in Ukraine.
"Explosive growth ahead," brokerage Hauck Aufhaeuser Investment Banking wrote on Thursday, adding Rheinmetall was set to benefit from an expected defence spending push due to its engineering know-how, production capabilities and footprint.
($1 = 0.9195 euros)