Thales vs Rheinmetall vs Leonardo: best defense stock 2026?

Last updated: July 2026

European rearmament is no longer a hypothesis: it is a budgetary reality here to stay. Faced with geopolitical tensions and the gradual withdrawal of the American security umbrella, European governments have crossed the Rubicon. Emmanuel Macron is targeting defence spending of 3 to 3.5% of GDP. Germany's 2027 defence budget is projected around EUR 145 billion (a 21% increase over 2026). The United Kingdom has ordered £1.6 billion worth of Thales missiles for Ukraine.

In 2025, European defense stocks delivered historic gains: Thales +69% for the full year, Leonardo +93%, Rheinmetall +152%. Since our June 2026 update, the picture has shifted again. Over the trailing 12 months to 29 July 2026: Thales has swung back into positive territory (+7.77%), Leonardo leads the trio (+14.32%), and Rheinmetall remains the laggard (-36.64%). Thales now trades at EUR 249.30, above its March 2026 level (EUR 241.30), on the back of a strong first-half 2026 beat (revenue up 6.2% to EUR 5.63 billion, adjusted EBIT up 9.9%, free cash flow surging to EUR 1.9 billion versus EUR 0.5 billion a year earlier, and full-year guidance raised). Rheinmetall trades at EUR 1'086.80 and reported second-quarter 2026 results this very day (29 July): operating profit of EUR 562 million comfortably beat the roughly EUR 470 million expected, on revenue up close to 70%, though management flagged that quarterly free operating cash flow is expected to be significantly negative due to the timing of advance payments. Leonardo trades at EUR 54.05, essentially flat since June, ahead of its own Q2 report due within days.

Analyst targets have eased slightly across the board since June: Thales EUR 293.95 (vs. EUR 296.60), Rheinmetall EUR 1'679.25 (vs. EUR 1'909.57) and Leonardo EUR 67.11 (vs. EUR 68.78). Thales retains the highest overall value score, but Leonardo has now edged ahead on the combined score (61 versus 60 for Thales), driven by improved momentum and low volatility. Which company offers the best value/growth balance for a FIRE investor? And how does the tax context change the equation?

Here is my full comparison, updated with data as of 29 July 2026.

Table of Contents

• Three European defense champions
• Thales (HO): France's defense electronics giant
• Rheinmetall (RHM): Germany's armored vehicle and ammunition specialist
• Leonardo (LDO): Italy's defense and aerospace conglomerate
• Financial metrics comparison
• Key figures at a glance
• Valuation: Thales still on top, but the value score gap has narrowed
• Profitability and growth: Thales' earnings surge, Rheinmetall's TTM figures still lag
• Dividends: Leonardo's payout still most conservative, yields up across the board
• Financial strength: Rheinmetall still on top, Thales' balance sheet improving fast
• Momentum: Thales and Leonardo both turn positive, Rheinmetall still correcting
• The tax dimension: France vs. the rest of the world
• For French investors: the PEA advantage remains intact, and now works in your favor on price too
• For Swiss and international investors: Thales and Leonardo are now running neck and neck
• My recommendation by investor profile
• French investors with PEA capacity
• Swiss, UK and international investors (no PEA)
• Investors seeking growth and willing to accept high volatility
• Conclusion
• Frequently asked questions
• Sources and data

Three European defense champions

Thales (HO): France's defense electronics giant

Thales is Europe's leading provider of electronics systems for defense, aerospace and transportation. The group employs 84'958 people and generates revenue of EUR 22.82 billion (TTM).

Business breakdown:

• Defense and security systems: 53.3% (command systems, electronic warfare, drones, air defense)
• Aerospace systems: 26.6% (avionics, satellites, payloads)
• Digital identity and security solutions: 19.6%
• 35% stake in Naval Group (naval defense and nuclear construction)

Strengths: Value champion of the trio, with the highest FCF yield (7.66%, up sharply on the H1 2026 cash surge) and lowest P/FCF (13.06). EPS up an extraordinary +118.9% (TTM), operating income up +22.62%, EV/EBITDA at 14.74. Net debt fell from EUR 1.62 billion at end-2025 to just EUR 519 million at 30 June 2026, and interest coverage improved to 10.79x. Eligible for the French PEA. Announced the planned acquisition of Exail in early July 2026, reinforcing autonomous underwater warfare and inertial navigation capabilities. Analyst price target of EUR 293.95, implying roughly +18% upside.

Weaknesses: P/E has climbed to 34.25 (TTM) as the share price outpaced the underlying earnings base, and the payout ratio has risen to 53.57%. ROE has eased slightly to 19.75%. Current ratio of 0.83 remains the tightest of the three. Beta and volatility readings have shifted a lot since the last update (3-year beta now 0.42), a reminder that short-window risk metrics can move quickly and are worth revisiting each quarter.

Rheinmetall (RHM): Germany's armored vehicle and ammunition specialist

Rheinmetall is the Bundeswehr's strategic supplier. With EUR 9.57 billion in revenue (TTM) and 32'251 employees, the group focuses on armored vehicles, weapons systems and ammunition. Its market capitalization stands at EUR 50.71 billion, after a correction that has left the stock down -36.64% over the trailing 12 months.

Positioning: Rheinmetall is a direct beneficiary of Germany's rearmament programme, supplying Leopard 2 tanks and a full range of artillery ammunition in high demand. Its order backlog remains at an all-time high, and Q2 2026 revenue jumped close to 70% year-on-year, comfortably beating the operating profit consensus published today.

Strengths: Record operating margin of 17.13% (TTM), the highest in the trio. Strongest balance sheet: debt/equity 0.40, interest coverage 14.77x, current ratio 1.05. Dividend yield has moved up to 1.06%. Highest analyst upside of the trio: roughly +55% toward EUR 1'679.25. Most attractive short-term PEG at 0.66. Today's Q2 print showed the sharpest revenue acceleration of the three companies this earnings season.

Weaknesses: TTM EPS growth remains negative (-8.96%) and TTM revenue is still down (-8.66%), a base-effect distortion that has not yet rolled off the trailing-twelve-month window. P/E of 68.93 remains very elevated even after easing from 77.37. Management flagged that free operating cash flow will be significantly negative this quarter due to the phasing of advance payments, a point worth watching closely. Heavy government order dependency. Overall combined score of 53, the lowest of the three.

Leonardo (LDO): Italy's defense and aerospace conglomerate

Leonardo is Italy's defense and aerospace champion. With 62'762 employees and EUR 19.50 billion in revenue (TTM), the group covers a diversified range from helicopters to defense electronics. The stock leads the trio over 12 months (+14.32%) and has also turned positive over the past three months (+3%), a clean reversal from the correction seen in the spring. Leonardo reports its own Q2 2026 results within days of this update.

Key activities: Helicopters (civil and military), avionics, defense electronics, cybersecurity, space systems. Partner in the Eurofighter programme and F-35 systems supplier.

Strengths: P/E of 25.47, still the lowest of the three. Overall combined score of 61, now marginally ahead of Thales (60). Strong 2-year Sharpe ratio (1.27), the best of the trio. Best 1-year return of the trio (+14.32%). Very conservative payout ratio (24.51%), leaving maximum room for dividend growth, and the dividend yield has improved to 1.17%. Beta has fallen back to 0.66, a more defensive reading than in June. Analyst price target EUR 67.11 (roughly +24% upside).

Weaknesses: FCF yield of 3.14%, well below Thales (7.66%). P/FCF of 31.82, less attractive than Thales (13.06). Lowest operating margin of the three (6.36%). Value score of 36, still just below Thales (38). Payout ratio and dividend growth headroom remain the strongest argument for patient income investors, while pure value investors will still find Thales cheaper on a cash-flow basis.

Financial metrics comparison

Key figures at a glance

Metric	Thales	Rheinmetall	Leonardo
Current price	EUR 249.30	EUR 1'086.80	EUR 54.05
Market cap	EUR 51.2bn	EUR 50.7bn	EUR 31.1bn
Revenue (TTM)	EUR 22.8bn	EUR 9.6bn	EUR 19.5bn
Employees	84'958	32'251	62'762
1-year return (TTM)	+7.77%	-36.64%	+14.32%
3-month return	+8%	-19%	+3%
Analyst price target	EUR 293.95 (+18%)	EUR 1'679.25 (+55%)	EUR 67.11 (+24%)

Valuation: Thales still on top, but the value score gap has narrowed

Thales' H1 2026 cash flow surge has widened its lead on cash-based metrics (FCF yield 7.66%, P/FCF 13.06), even as its P/E has risen with the share price. Leonardo maintains its P/E advantage (25.47 vs. 34.25 for Thales) and its EV/EBITDA stays close to Thales' (17.67 vs. 14.74). Rheinmetall's PEG remains the most attractive of the trio (0.66) on projected growth, even though its P/E stays elevated.

Ratio	Thales	Rheinmetall	Leonardo	Winner
P/E (TTM)	34.25	68.93	25.47	✓ Leonardo
Forward P/E	23.51	28.90	23.22	✓ Leonardo
P/B	6.42	9.55	3.25	✓ Leonardo
P/S (TTM)	2.25	5.33	1.59	✓ Leonardo
P/FCF (TTM)	13.06	60.52	31.82	✓ Thales
EV/EBITDA	14.74	25.70	17.67	✓ Thales
EV/Sales	2.27	5.46	1.72	✓ Leonardo
FCF Yield	7.66%	1.65%	3.14%	✓ Thales
PEG (short-term)	0.82	0.66	1.68	✓ Rheinmetall
Overall value score	38	22	36	✓ Thales

Valuation rating:

• Thales: ★★★★★ (FCF yield 7.66%, P/FCF 13.06, EV/EBITDA 14.74, value score 38, still the best overall on cash-based metrics)
• Leonardo: ★★★★☆ (P/E 25.47, lowest of the three; P/B 3.25 attractive; value score 36, closing the gap)
• Rheinmetall: ★★☆☆☆ (P/E 68.93 still very elevated, PEG 0.66 attractive on projected growth, value score 22)

Profitability and growth: Thales' earnings surge, Rheinmetall's TTM figures still lag

Thales' H1 2026 results have transformed its profitability profile: EPS growth (TTM) has jumped to +118.9% and operating income growth to +22.62%, reflecting the combination of strong order intake, margin expansion and the working-capital release that drove free cash flow to EUR 1.9 billion in the half. Rheinmetall's TTM revenue (-8.66%) and EPS (-8.96%) remain negative, a base-effect distortion that should clear as the very strong Q2 2026 print (revenue up close to 70%) rolls fully into the trailing window over coming quarters. Its operating margin of 17.13% remains the best of the three.

Metric	Thales	Rheinmetall	Leonardo
ROE (TTM)	19.75%	21.31%	13.20%
ROA (TTM)	3.79%	6.10%	3.59%
Operating margin	10.60%	17.13%	6.36%
Revenue growth (TTM)	+6.89%	-8.66%	+9.80%
EPS growth (TTM)	+118.90%	-8.96%	+13.78%
EPS growth (5-year)	29.10%	92.74%	38.32%
FCF Yield	7.66%	1.65%	3.14%

Profitability rating:

• Thales: ★★★★★ (EPS +118.9% TTM, FCF yield 7.66%, net debt down to EUR 519 million)
• Leonardo: ★★★☆☆ (EPS +13.78% TTM, revenue +9.80%, ROE 13.20%)
• Rheinmetall: ★★★☆☆ (record operating margin 17.13%, ROA 6.10%, best of the three, but TTM EPS -8.96% and revenue -8.66%)

Dividends: Leonardo's payout still most conservative, yields up across the board

Dividend yields have moved up for all three names since June: Thales to 1.56% (still the highest), Rheinmetall to 1.06% and Leonardo to 1.17%. Payout ratios diverge: Thales' has risen to 53.57% as earnings normalize post-surge, while Rheinmetall (35.31%) and Leonardo (24.51%) are unchanged.

Metric	Thales	Rheinmetall	Leonardo
Dividend yield	1.56%	1.06%	1.17%
Payout ratio (TTM)	53.57%	35.31%	24.51%
Shareholder yield	1.65%	0.94%	1.26%

Dividend rating:

• Leonardo: ★★★★☆ (payout 24.51%, maximum safety margin, strongest future dividend growth potential)
• Thales: ★★★☆☆ (yield 1.56%, highest of the three, payout now up to 53.57%)
• Rheinmetall: ★★★☆☆ (yield 1.06%, payout 35.31%, growing its distribution while prioritizing reinvestment)

Financial strength: Rheinmetall still on top, Thales' balance sheet improving fast

Rheinmetall remains the financially strongest of the trio (debt/equity 0.40, interest coverage 14.77x). The standout move since June is Thales: debt/equity has improved from 0.77 to 0.70 and interest coverage from 9.53x to 10.79x, as net debt fell to just EUR 519 million on the back of the H1 2026 cash flow surge.

Metric	Thales	Rheinmetall	Leonardo
Debt/Equity	0.70	0.40	0.47
Interest coverage (TTM)	10.79x	14.77x	6.14x
Current ratio	0.83	1.05	0.97

Financial strength rating:

• Rheinmetall: ★★★★★ (debt/equity 0.40, interest coverage 14.77x, current ratio 1.05)
• Leonardo: ★★★★☆ (debt/equity 0.47, interest coverage 6.14x)
• Thales: ★★★☆☆ (debt/equity improved to 0.70, interest coverage up to 10.79x, net debt down to EUR 519 million)

Momentum: Thales and Leonardo both turn positive, Rheinmetall still correcting

Momentum has flipped since our last update. Both Thales (+7.77% over 1 year, +8% over 3 months) and Leonardo (+14.32% over 1 year, +3% over 3 months) are now positive across every timeframe, while Rheinmetall remains negative (-36.64% over 1 year, -19% over 3 months) despite today's strong Q2 revenue print. Analyst conviction on Rheinmetall has held up (recommendation 1.24, near-unchanged), signaling the market still sees the correction as largely excessive rather than fundamental.

Period	Thales	Rheinmetall	Leonardo
1-year return (TTM)	+7.77%	-36.64%	+14.32%
3-month return	+8%	-19%	+3%
Beta (3-year)	0.42	0.74	0.66
Sharpe ratio (2-year)	0.83	0.95	1.27
Analyst recommendation	1.60	1.24	1.42

Note: analyst recommendation on a 1 (strong buy) to 5 (sell) scale.

Momentum rating:

• Thales: ★★★★★ (positive across every timeframe, most defensive beta of the trio at 0.42)
• Leonardo: ★★★★☆ (best 1-year return +14.32%, best Sharpe ratio 1.27, now positive over 3 months too)
• Rheinmetall: ★★☆☆☆ (still -36.64% over 1 year and -19% over 3 months, though analyst upside remains the highest of the trio at roughly +55%)

The tax dimension: France vs. the rest of the world

This section matters because tax treatment can radically alter the risk/return equation depending on your country of residence.

For French investors: the PEA advantage remains intact, and now works in your favor on price too

Thales is the only one of the three eligible for the PEA (Plan d'Épargne en Actions). With the stock now at EUR 249.30, above the March 2026 level of EUR 241.30:

• After 5 years of holding: 0% tax on dividends and capital gains
• Massive tax saving vs. the standard 30% flat tax (prélèvement forfaitaire unique)
• On a 1.56% dividend, the tax saving represents roughly +0.47% of additional annual yield
• Analyst price target at EUR 293.95: roughly +18% upside before tax, and 0% tax in a PEA

Rheinmetall and Leonardo are NOT eligible for the PEA (listed on German and Italian exchanges respectively). They require a standard brokerage account subject to the 30% flat tax.

10-year simulation (conservative assumptions):

Initial investment: EUR 10'000. Average annual dividend: 1.5%. Capital gain over 10 years: +100%.

• Thales in PEA: Net gain = 10'000 + 1'500 (net dividends) + 10'000 (net capital gain) = EUR 21'500
• Leonardo in standard account: Net gain = 10'000 + 1'050 (dividends after 30%) + 7'000 (gain after 30%) = EUR 18'050
• Gap: EUR 3'450, i.e. 19% additional return in favor of Thales

This tax advantage, combined with strong fundamentals (FCF yield 7.66%, P/FCF 13.06, EPS +118.9%), a much stronger balance sheet than in June, and a share price that has now recovered above its March 2026 level, makes Thales the obvious choice for any French investor with PEA capacity available.

For Swiss and international investors: Thales and Leonardo are now running neck and neck

Outside the French PEA, all three stocks are on a level tax playing field. Key considerations by investor profile:

• Swiss investors: Foreign withholding tax applies on dividends (15 to 35% depending on country) and must be declared as regular income. Capital gains on private portfolios are tax-free. This tilts the preference toward growth over yield.
• UK investors: All three can be held in an ISA or a standard brokerage account. EUR-denominated positions involve FX exposure to GBP.
• US and other international investors: Standard brokerage accounts apply; European withholding taxes vary by treaty. Always consult a local tax adviser.

On pure fundamentals, the two now sit within a single point of each other on the overall combined score (60 for Thales, 61 for Leonardo). Thales still leads on the most robust cash-based value metrics (FCF yield 7.66% vs. 3.14%, P/FCF 13.06 vs. 31.82) and has just posted an exceptional earnings and cash flow half, plus the Exail acquisition. Leonardo leads on P/E (25.47 vs. 34.25), Sharpe ratio (1.27 vs. 0.83) and 1-year performance (+14.32% vs. +7.77%). Both deserve a place in a non-PEA portfolio.

My recommendation by investor profile

French investors with PEA capacity

Thales (HO) ★★★★★

Thales combines three decisive advantages now. First, the PEA tax benefit (0% tax after 5 years), worth roughly 19% of additional return over 10 years. Second, a first-half 2026 that reset the fundamentals: EPS +118.9% (TTM), FCF yield 7.66% (best of the three), net debt cut to EUR 519 million, and full-year guidance raised. Third, the Exail acquisition strengthens its strategic positioning. At EUR 249.30, the stock has already erased the spring correction and moved above its March 2026 level, with roughly +18% further upside toward the analyst target of EUR 293.95.

Suggested allocation: Core position in a defense PEA portfolio. Analyst price target EUR 293.95 (roughly +18% upside).

Swiss, UK and international investors (no PEA)

Thales (HO) ★★★★★ as primary holding, Leonardo (LDO) ★★★★☆ as a near-equal complement

Their overall scores are now within a single point of each other (60 for Thales, 61 for Leonardo), so this has become a genuinely close call. Thales' first-half 2026 performance (FCF yield 7.66%, P/FCF 13.06, net debt down to EUR 519 million, guidance raised) and the Exail acquisition tip the balance in its favor for a pure value and quality argument. Leonardo wins on P/E (25.47 vs. 34.25), Sharpe ratio (1.27 vs. 0.83) and is marginally ahead over 1 year (+14.32% vs. +7.77%), and offers the most conservative payout ratio of the trio (24.51%) for dividend growth seekers.

Suggested allocation: Thales as the primary position in a balanced defense portfolio, Leonardo as a near-equal complement given its narrow overall-score edge, lower P/E and dividend growth potential.

Investors seeking growth and willing to accept high volatility

Rheinmetall (RHM) ★★★☆☆

Today's Q2 2026 results (29 July) beat operating profit expectations by a wide margin, with revenue up close to 70% year-on-year, and confirm the order backlog remains at record levels. The balance sheet stays the best of the three (debt/equity 0.40, interest coverage 14.77x). Analyst upside remains the highest of the trio, at roughly +55% toward EUR 1'679.25.

Caution: P/E remains elevated at 68.93, TTM growth is still negative (EPS -8.96%, revenue -8.66%), and management has flagged that quarterly free operating cash flow will be significantly negative due to advance-payment phasing. The 1-year return remains deeply negative (-36.64%). Confirmation of the TTM base effect clearing over the next couple of quarters is essential before adding to a position.

Suggested allocation: Maximum 5 to 10% of the portfolio, satellite position with a recommended stop-loss at -20%.

Conclusion

European rearmament remains a structural trend with a 10-to-15-year runway. All three companies benefit from this tailwind, and the picture has moved on meaningfully since our June 2026 update: Thales has delivered an exceptional first half, cutting net debt and lifting cash flow, while announcing the Exail acquisition. Leonardo has quietly overtaken Thales on the overall combined score (61 versus 60), helped by strong momentum and low volatility. Rheinmetall just posted a Q2 revenue beat but continues to carry the weakest 1-year return and a cash flow caveat for the current quarter.

Thales remains the overall value champion (value score 38, FCF yield 7.66%) with fundamentals that have improved sharply since June. Leonardo has edged ahead on the combined score and still leads on P/E (25.47). Rheinmetall offers a reinforced order book and the highest analyst upside, but negative TTM growth and a flagged negative quarterly cash flow warrant close monitoring.

Summary verdict:

• French investors (PEA): Thales, without hesitation: decisive tax advantage, best FCF yield, and a share price that has now recovered above its March 2026 level
• Swiss and international value investors: Thales as first choice (superior FCF yield and value score, plus a transformative first half), Leonardo as a near-equal complement (lower P/E, marginally higher overall score, strongest dividend growth potential)
• Growth/speculative profile: Rheinmetall as a limited satellite position: today's revenue beat and record backlog support the thesis, but negative TTM growth and a flagged negative quarterly cash flow demand confirmation over coming quarters

The defense sector does not suit all ethical investment profiles. Each investor must decide according to their own values. Personally, I consider supporting European strategic autonomy against authoritarian regimes to be a defensible investment rationale.

Frequently asked questions

Which European defense stock is best for a French PEA account?

Thales is the only one of the three eligible for the PEA. In July 2026, at EUR 249.30 (now above its March 2026 level), the fundamentals have strengthened materially: EPS has grown +118.9% (TTM), FCF yield reaches 7.66%, and net debt has fallen to just EUR 519 million after the H1 2026 results. The PEA tax saving (roughly 19% over 10 years), combined with a value score of 38 and roughly +18% analyst upside (EUR 293.95 target), makes Thales the optimal choice for French investors.

Thales or Leonardo for a standard brokerage account?

Both deserve a place in the portfolio, and the choice has become closer since our last update. Thales leads on cash-based value metrics: FCF yield 7.66% vs. 3.14%, P/FCF 13.06 vs. 31.82, value score 38 vs. 36. Leonardo leads on P/E (25.47 vs. 34.25), Sharpe ratio (1.27 vs. 0.83) and 1-year performance (+14.32% vs. +7.77%), and now edges Thales on the overall combined score (61 vs. 60). For a pure value investor: Thales first. For a balanced profile: both in the portfolio.

Is the defense sector compatible with ethical investing?

A legitimate question every responsible investor must address. All three companies manufacture defense systems supplied primarily to NATO and EU member democracies. Leonardo and Thales also have significant civil activities (satellites, commercial avionics, cybersecurity). Each investor must decide according to their own values; there is no universal answer.

Should investors worry about Rheinmetall's negative TTM growth?

It is worth monitoring rather than ignoring. TTM EPS (-8.96%) and TTM revenue (-8.66%) remain negative, largely a base-effect distortion from prior periods. Today's Q2 2026 results (29 July) showed revenue up close to 70% year-on-year and an operating profit beat, which should start clearing that base effect over coming quarters, though management also flagged that free operating cash flow will be significantly negative this quarter due to advance-payment timing. P/E of 68.93 remains very elevated relative to Thales (34.25) and Leonardo (25.47).

Are dividends safe in the defense sector?

Yes. All three companies have record order backlogs and robust cash flows. Leonardo (payout 24.51%): maximum safety, strongest growth potential. Thales (payout 53.57%): highest yield at 1.56%, though the payout has risen alongside the earnings surge. Rheinmetall (payout 35.31%, yield 1.06%): growing its distribution while prioritizing reinvestment.

How will the European rearmament trend evolve over the coming years?

Rearmament is a structural, 10-to-15-year trend. Germany's 2027 defence budget alone is projected around EUR 145 billion (a 21% increase over 2026). Major programmes (SCAF, new naval fleets, artillery modernization) run for decades. The order backlogs of all three groups remain at or near all-time highs, and Thales' Exail acquisition (announced July 2026) illustrates how the sector continues to consolidate around new capability areas such as autonomous underwater systems.

Sources and data

Financial data: FactSet via Portfolio123 (data as of 29 July 2026, TTM = trailing twelve months)

Official sources:

• Thales: Thales investor relations
• Rheinmetall: Rheinmetall investor relations
• Leonardo: Leonardo investor relations

Methodology: Valuation ratios (P/E, P/B, P/S, P/FCF) use TTM (trailing twelve months) data. Growth figures compare current TTM vs. prior TTM. The 5-star ratings per category compare the relative performance of the three companies across key metrics of each dimension (valuation, profitability, dividends, financial strength, momentum).