Higher oil and gas prices: The war in Iran is putting a strain on the German economy and stock market. Arms companies in particular can benefit from the conflict.
Frankfurt am Main – The Dax continues its downward trend on Tuesday. The war in Iran is putting a general strain on European stock markets: the Europe STOXX 600 stock index has fallen by a good 4 percent, and the DAX has lost almost 6 percent since the beginning of the week. However, the war in Ukraine shows that defense stocks are becoming increasingly important in Europe. Since the start of the Ukraine war in 2022, the German arms company Rheinmetall has increased by a good 1,500 percent. However, the company has not been one of the big winners since the start of the Iran war. This may also be due to the high price-earnings ratio (P/E) of just over 37.
The biggest winners among defense stocks this week, however, are Hensoldt and Renk: Hensoldt’s prices rose by 4.9 percent. Renk recorded an increase of 3.6 percent. The papers of the submarine manufacturer TKMS went into the red by 0.7 percent, but were still comparatively far ahead in the MDax. Rheinmetall also did better than the German stock index with a loss of 3.4 percent.
Despite the Iran War: German arms companies like Rheinmetall face a valuation dilemma
Table of Contents
- Despite the Iran War: German arms companies like Rheinmetall face a valuation dilemma
- From Taurus to Leopard – an overview of the Bundeswehr’s weapon systems
- European defense companies like BAE are cheaper compared to Rheinmetall and Co
- US defense companies are benefiting from the tense security situation in the Middle East
Despite ongoing geopolitical tensions, German defense companies are faced with a valuation dilemma. Although Rheinmetall expects record orders of around 80 billion euros this year and sales may increase by a third, sales of more than around 15 billion euros are unlikely to be possible if production is at full capacity Business Week analyzed. With a market capitalization of a good 80 billion euros, this results in a sales valuation of 5.3 times, while the profit valuation should settle around 45.
The valuation problem affects the entire German defense industry. Weapons electronics specialist Hensoldt expects sales growth of ten percent in 2026 thanks to high orders, although the shares will still need some time to break out upwards. Transmission manufacturer Renk, a key supplier for important tanks such as the Leopard, Puma and Boxer, is expected to increase its sales by around 15 percent to more than 1.5 billion euros, writes the Business Week further. With a P/E ratio of almost 50, TKMS is just as expensive as Rheinmetall, although its growth rates are weaker.
European defense companies like BAE are cheaper compared to Rheinmetall and Co
In contrast, European defense companies are showing a more stable development. The British market leader BAE Systems benefits from its broad product range and the development of high-tech weapons, drones and cyber defense. Another advantage is the strong business in the USA, the world’s most important arms market, which accounts for around 50 percent of sales. With a P/E ratio below 30, BAE shares are almost cheap compared to German defense companies.
US defense companies also benefited from the US attack on Iran: Lockheed Martin rose by 3.3 percent on Monday, RTX by 4.7 percent and Northrop Grumman by 6 percent. All three companies hit new 52-week highs. Lockheed Martin and Northrop Grumman even recorded increases of 40 and 46 percent respectively.
US defense companies are benefiting from the tense security situation in the Middle East
Northrop Grumman in particular, manufacturer of the B-2 stealth bomber and radar technology, is benefiting from the changed security situation. The company had already risen 15 percent in 2025 before the US’s June attack on Iran’s nuclear facilities. Lockheed Martin, on the other hand, remained unchanged during the period as investors feared the military might shelve manned fighter jets in favor of lower-cost autonomous systems, according to the US Business Journal Barrons writes. The F-35 jet accounts for about 25 percent of Lockheed’s sales.
The US military operation could last for several weeks, as US Defense Secretary Pete Hegseth and US President Donald Trump said on Monday. However, Byron Callan of Capital Alpha Partners, a Washington-based advisory firm, warns of unclear future prospects in the Middle East. “A new phase of the US-Israel war against Iran (…) to overthrow the regime could negatively impact demand for conventional military equipment, assuming Iran’s missile forces are eliminated,” he writes. He has little confidence in a peaceful transition to a successor government in Iran. (Sources: Wirtschaftswoche/Barrons/Wall Street Journal/dpa) (sir)
