Business is good these days for companies that cater to the defense sector, and even better for those that are directly involved in arming Ukraine to the teeth to fend off those "pesky Russians." One such beneficiary is Germany's largest defense contractor, Rheinmetall AG (ETR: RHM), which has seen its shares soar to a fresh all-time zenith this year as the European powerhouse's weapons and ammunition backlog keeps increasing.
The Ukraine-Russia conflict has essentially ground to a stalemate at present, with the underdog failing to make any significant headway in its much-touted counteroffensive against Russia. This active war theater is now rapidly degrading into a war of attrition and a battle of nerves.
Surprisingly, Russia has significantly increased its capacity to manufacture battlefield arms and ammunition. Before the war, the Asian giant could only produce 100 tanks per year. Now, Russia is producing twice as many units. In fact, as per Estonian officials, Russian arms manufacturers are now making around seven times as much ammunition as all Western manufacturers combined!
In Germany, weapon manufacturers are still struggling to meet increased demand in the wake of Russia's invasion of Ukraine.
Backlogs of weapon and ammo orders have now exceeded 55 months of production, more than double the pre-invasion average. pic.twitter.com/0Y773F8a4X
— Joey Politano
(@JosephPolitano) September 20, 2023
It is hardly a surprise, therefore, that the German weapons and ammunition backlog keeps increasing. It will now take Germany 55 months or 4.5 years of constant production at the current levels to clear this gigantic backlog - a situation that suits companies such as Rheinmetall just fine.
Rheinmetall not only manufactures armored vehicles but also the L44 and L55 guns that are mounted on the Leopard 2 M1 Abrams tanks. Moreover, the PzH 2000 self-propelled howitzer is armed with Rheinmetall's L52 155 mm gun.
As NATO works tirelessly to keep Ukraine's weapons lines open and functional, Rheinmetall has seen its shares soar amid relentless demand. Consider the fact that the company's shares are up over 30 percent so far this year, a considerable feat for a stock that is not known for much volatility. What's more, the stock is currently hovering near its all-time high of 281.30 Euro, which was formed toward the start of the summer.
On a more philosophical level, with Russia clearly outproducing the collective West in terms of battlefield weapons and ammunition and Ukraine failing to make much headway, the current stalemate situation clearly benefits Russia as well as Western arms manufacturers such as Rheinmetall. What's more, even the delivery of F-16 fighter jets next year will not be a game-changer for Ukraine, given the preponderance of effective missile defense systems on both sides of the border. For Rheinmetall investors, however, the company's never-ending order backlog is a veritable manna from heaven.
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