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(Bloomberg) -- Defense firm Rheinmetall AG may be one of the biggest beneficiaries from the German election, with analysts at UBS Group AG predicting 35% more upside even after the stock’s recent surge to a record high.
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Analysts at the bank became the latest to increase their twelve-month target on Monday, saying that spending on defense is set to rise following Sunday’s poll. The firm raised its rating on Rheinmetall to buy from neutral and set a new target of €1,208. That’s the highest among analysts tracked by Bloomberg.
Rheinmetall shares have risen more than 800% since Russia’s invasion of Ukraine three years ago. The shares jumped in recent weeks after reports that European officials are working on a major new package to ramp up defense spending and support Kyiv. German lawmakers also approved about €2.5 billion ($2.6 billion) worth of weapons and equipment orders.
“Defense spending is set to rise even in an adverse final election outcome,” the analysts wrote in a note. “A new government may still have various tools to raise defense spending via triggering the emergency escape clause, budget reallocation or tax hikes.”
Germany’s conservative leader Friedrich Merz emerged as the winner of Sunday’s election, and investors are betting that he’ll move quickly to form a government in a coalition with the Social Democrats. The euro climbed and Germany’s benchmark stock gauge advanced as investors expect a quick resolution and a possible loosening of tight fiscal policy to boost the economy.
The new government may have limited options to revise strict limits on public borrowing because it lacks the two-thirds majority that’s needed to reform the so-called debt brake. Still, UBS said defense is likely to be a priority, while Rheinmetall is also seen as a beneficiary of higher European land-system spending in the upcoming NATO Capability Review.
The shares rose as much as 5% on Monday, touching a fresh record. After UBS’s upgrade, the stock has 16 buy ratings, three holds and one sell recommendation among analysts tracked by Bloomberg.
--With assistance from Joe Easton.
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