Last updated: June 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 has unlocked hundreds of billions for the Bundeswehr. 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 March 2026 analysis, the sector underwent a correction before partially recovering. Over the trailing 12 months to 12 June 2026: Leonardo holds up best (+12.21%), Thales gives back a little (-2.46%), and Rheinmetall takes a severe hit (-31.37%). Over the last three months, the pullback is broad across all three: Thales -5%, Rheinmetall -21%, Leonardo -16%. Since our May 2026 update, however, prices have partially rebounded: Thales up +4.3% (EUR 237.80), Rheinmetall essentially flat (EUR 1,220), Leonardo up +1.0% (EUR 53.71).
Analyst targets are broadly stable vs. May: slightly higher for Thales (EUR 296.60 vs. EUR 294.82), slightly lower for Rheinmetall (EUR 1,909.57 vs. EUR 2,020.96) and Leonardo (EUR 68.78 vs. EUR 69.67). Leonardo remains the cheapest on P/E (25.31) and has strengthened its overall score to 59/100, neck and neck with Thales (60/100). 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 12 June 2026.
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 22.1 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 valuation score (41/100) and overall combination score (60/100). EPS up +61.83% (TTM), FCF yield of 5.24% (best of the three), P/FCF at 19.09, EV/EBITDA at 15.28. ROE of 21.63% (TTM). Eligible for the French PEA. Most defensive profile (beta 0.86, annual volatility 1.97%). Analyst price target of EUR 296.60, implying +25% upside.
Weaknesses: Stock virtually unchanged since March 2026 (EUR 237.80 vs. EUR 241.30, -1.5%) and -2.46% over 12 months. P/E has edged up to 29.18, suggesting modest revision in earnings expectations. Sharpe ratio (2Y) of 0.74, the weakest of the three. Analyst recommendation slightly less bullish (1.65). Debt/equity of 0.77, highest of the three.
Rheinmetall (RHM): Germany's armored vehicle and ammunition specialist
Rheinmetall is the Bundeswehr's strategic supplier. With EUR 9.6 billion in revenue (TTM) and 32,251 employees, the group focuses on armored vehicles, weapons systems and ammunition. Its market capitalization stands at EUR 55.8 billion, after a -23.4% correction since March 2026.
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 is at an all-time high.
Strengths: Record operating margin of 17.13% (TTM), the highest in the trio. Strongest balance sheet: debt/equity 0.40, interest coverage 14.77x. ROA of 6.10% and ROE of 21.31% (TTM). P/FCF at 66.66, reflecting dramatically higher free cash flow generation. Highest analyst upside of the trio: +57% toward EUR 1,909.57, with the strongest buy recommendation (1.21). Projected EPS growth of +47%. Most attractive short-term PEG: 0.73. Dividend yield sharply higher at 0.94%.
Weaknesses: -23.4% correction since March 2026, the deepest of the trio. TTM EPS growth negative (-8.96%) and TTM revenue declining (-8.66%): likely a base effect, but requires confirmation. P/E of 77.37 remains very elevated. Heavy government order dependency. Overall Core Combination score of 54, the lowest of the three. Analyst target revised down vs. May (EUR 1,909.57 vs. EUR 2,020.96).
Leonardo (LDO): Italy's defense and aerospace conglomerate
Leonardo is Italy's defense and aerospace champion. With 62,762 employees and EUR 19.5 billion in revenue (TTM), the group covers a diversified range from helicopters to defense electronics. The stock leads the trio over 12 months (+12.21%), despite an -8.4% correction since March 2026 and -16% over the past three months.
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 25.31, still the lowest of the three. Overall Core Combination score of 59, neck and neck with Thales (60) — gap down to just one point. Best 2-year Sharpe ratio of the trio (1.25). Best 1-year return (+12.21%). Very conservative payout ratio (24.51%), leaving maximum room for dividend growth. Solid balance sheet (debt/equity 0.47). Interest coverage at 6.14x. Analyst price target EUR 68.78 (+28% upside). Balanced exposure to defense and civil aerospace.
Weaknesses: FCF yield of 3.16%, well below Thales (5.24%). P/FCF of 31.62, less attractive than Thales (19.09). Lowest operating margin of the three (6.36%). Value score of 35, below Thales (41). Projected EPS growth of 21%, below Rheinmetall (47%). Beta now above 1 (1.04), signaling above-market volatility. -16% over 3 months, and analyst target slightly revised down (EUR 68.78 vs. EUR 69.67 in May).
Financial metrics comparison
Key figures at a glance
| Metric | Thales | Rheinmetall | Leonardo |
|---|---|---|---|
| Current price | EUR 237.80 | EUR 1,220.00 | EUR 53.71 |
| Market cap | EUR 48.9bn | EUR 55.8bn | EUR 30.9bn |
| Revenue (TTM) | EUR 22.1bn | EUR 9.6bn | EUR 19.5bn |
| Employees | 84,958 | 32,251 | 62,762 |
| 1-year return (TTM) | -2.46% | -31.37% | +12.21% |
| 3-month return | -5% | -21% | -16% |
| Analyst price target | EUR 296.60 (+25%) | EUR 1,909.57 (+57%) | EUR 68.78 (+28%) |
Valuation: Thales top value score, Leonardo still cheapest on P/E
The valuation landscape is broadly stable since May 2026. Leonardo maintains its P/E advantage (25.31 vs. 29.18 for Thales), while Thales retains the edge on cash flow metrics (FCF yield 5.24%, P/FCF 19.09, EV/EBITDA 15.28). Analyst targets are broadly stable — slightly up for Thales, slightly down for Rheinmetall and Leonardo.
| Ratio | Thales | Rheinmetall | Leonardo | Winner |
|---|---|---|---|---|
| P/E (TTM) | 29.18 | 77.37 | 25.31 | ✓ Leonardo |
| Forward P/E | 22.26 | 32.03 | 23.55 | ✓ Thales |
| P/B | 6.14 | 10.52 | 3.23 | ✓ Leonardo |
| P/S (TTM) | 2.21 | 5.87 | 1.58 | ✓ Leonardo |
| P/FCF (TTM) | 19.09 | 66.66 | 31.62 | ✓ Thales |
| EV/EBITDA | 15.28 | 28.22 | 17.57 | ✓ Thales |
| EV/Sales | 2.28 | 5.99 | 1.71 | ✓ Leonardo |
| FCF Yield | 5.24% | 1.50% | 3.16% | ✓ Thales |
| PEG (short-term) | 1.26 | 0.73 | 1.80 | ✓ Rheinmetall |
| Innovation P/E (R&D incl.) | 16.31 | 38.81 | 21.13 | ✓ Thales |
| Overall value score | 41 | 22 | 35 | ✓ Thales |
Valuation rating:
- Thales: ★★★★★ (FCF yield 5.24%, P/FCF 19.09, EV/EBITDA 15.28, value score 41 — best overall valuation)
- Leonardo: ★★★★☆ (P/E 25.31 — lowest of the three, P/B 3.23 attractive, FCF yield 3.16%)
- Rheinmetall: ★★☆☆☆ (P/E 77.37 still very elevated, PEG 0.73 attractive on projected growth, value score 22)
Profitability and growth: Thales leads, Rheinmetall's TTM figures require monitoring
Profitability data is stable since May 2026. Thales remains the leader on earnings growth (+61.83% EPS TTM) and FCF yield (5.24%). Rheinmetall continues to show negative TTM revenue growth (-8.66%) and negative EPS growth (-8.96%), most likely a base effect. Analysts project +47% EPS growth for Rheinmetall, suggesting the market views this as temporary. Its operating margin of 17.13% is at an all-time high.
| Metric | Thales | Rheinmetall | Leonardo |
|---|---|---|---|
| ROE (TTM) | 21.63% | 21.31% | 13.20% |
| ROA (TTM) | 4.23% | 6.10% | 3.59% |
| Operating margin | 10.02% | 17.13% | 6.36% |
| Revenue growth (TTM) | +7.58% | -8.66% | +9.80% |
| EPS growth (TTM) | +61.83% | -8.96% | +13.78% |
| Operating income growth (TTM) | +22.11% | +12.88% | +7.92% |
| EPS growth (5-year) | 29.10% | 92.74% | 38.32% |
| Projected EPS growth | +15% | +47% | +21% |
| FCF Yield | 5.24% | 1.50% | 3.16% |
Profitability rating:
- Thales: ★★★★★ (EPS +61.83% TTM, ROE 21.63%, FCF yield 5.24%, operating income growth +22.11%)
- 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 EPS TTM -8.96% and revenue TTM -8.66%)
Dividends: Leonardo's payout most conservative, Rheinmetall surging
Rheinmetall's dividend yield has surged to 0.94% (vs. 0.60% in May), likely reflecting a significantly higher FY2024 annual dividend payment. Rheinmetall now sits almost level with Leonardo (0.97%) on this metric. Thales retains the highest yield at 1.64%. Payout ratios are unchanged.
| Metric | Thales | Rheinmetall | Leonardo |
|---|---|---|---|
| Dividend yield | 1.64% | 0.94% | 0.97% |
| Payout ratio (TTM) | 46.62% | 35.31% | 24.51% |
| Shareholder yield | 1.73% | 0.84% | 1.07% |
Dividend rating:
- Leonardo: ★★★★☆ (payout 24.51% — maximum safety margin, strongest future dividend growth potential)
- Thales: ★★★☆☆ (yield 1.64% — highest of the three, payout 46.62%, shareholder yield 1.73%)
- Rheinmetall: ★★★☆☆ (yield 0.94% — sharply higher since May, payout 35.31%; growing its distribution while prioritizing reinvestment)
Financial strength: Rheinmetall and Leonardo lead
Rheinmetall remains the financially strongest of the trio (debt/equity 0.40, interest coverage 14.77x). All balance sheet ratios are unchanged from May 2026.
| Metric | Thales | Rheinmetall | Leonardo |
|---|---|---|---|
| Debt/Equity | 0.77 | 0.40 | 0.47 |
| Interest coverage (TTM) | 9.53x | 14.77x | 6.14x |
| Current ratio | 0.84 | 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 0.77, interest coverage 9.53x)
Momentum: broad 3-month correction, Leonardo still leads on 1-year return
Momentum data reflects the correction that occurred mainly between March and May. Prices have partially recovered since, but the 3-month and 12-month returns remain negative for Thales and Rheinmetall. Leonardo is still the only stock positive over 12 months (+12.21%). Its beta has crossed 1 (1.04 vs. 0.92 in March), meaning it now carries above-market volatility. Analyst buy recommendations for Rheinmetall have strengthened (1.21 vs. 1.30 in March), signaling the selloff is seen as excessive.
| Period | Thales | Rheinmetall | Leonardo |
|---|---|---|---|
| 1-year return (TTM) | -2.46% | -31.37% | +12.21% |
| 3-month return | -5% | -21% | -16% |
| Beta (3-year) | 0.86 | 0.90 | 1.04 |
| Annual volatility | 1.97% | 2.81% | 2.56% |
| Sharpe ratio (2-year) | 0.74 | 1.11 | 1.25 |
| Analyst recommendation | 1.65 | 1.21 | 1.47 |
Note: analyst recommendation on a 1 (strong buy) to 5 (sell) scale.
Momentum rating:
- Leonardo: ★★★☆☆ (best 1-year return +12.21%, Sharpe ratio 1.25, but -16% over 3 months and beta now above 1)
- Thales: ★★★☆☆ (most moderate 3-month correction (-5%), defensive beta 0.86, -2.46% over 1 year)
- Rheinmetall: ★★☆☆☆ (strongest analyst recommendation 1.21, +57% analyst upside, but -31.37% over 1 year and -21% over 3 months)
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
Thales is the only one of the three eligible for the PEA (Plan d'Épargne en Actions). With the stock at EUR 237.80 — slightly below 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 1.64% dividend, the tax saving represents roughly +0.49% of additional annual yield
- Analyst price target at EUR 296.60: +25% 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 5.24%, P/FCF 19.09, EPS +61.83%) and a stock price still slightly below March 2026 levels, makes Thales the obvious choice for any French investor with PEA capacity available.
For Swiss and international investors: Thales leads, Leonardo almost level
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 (15-35% 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, Thales leads — with Leonardo now almost level on the overall score: Thales retains the advantage on the most robust value metrics (FCF yield 5.24% vs. 3.16%, P/FCF 19.09 vs. 31.62, EV/EBITDA 15.28 vs. 17.57, value score 41 vs. 35). But Leonardo has narrowed the overall gap to just one point (59 vs. 60), and still leads on P/E (25.31 vs. 29.18) and Sharpe ratio (1.25 vs. 0.74). Both deserve a place in a non-PEA portfolio.
My recommendation by investor profile
French investors with PEA capacity
Thales (HO) ★★★★★
Thales combines two decisive advantages. First, the PEA tax benefit (0% tax after 5 years), worth roughly 19% of additional return over 10 years. Second, solid fundamentals: EPS +61.83% (TTM), FCF yield 5.24% (best of the three), P/FCF 19.09, ROE 21.63%, value score 41. At EUR 237.80, the stock remains slightly below its March 2026 level (EUR 241.30), with +25% upside toward the analyst target of EUR 296.60.
Suggested allocation: Core position in a defense PEA portfolio. Analyst price target EUR 296.60 (+25% upside).
Swiss, UK and international investors (no PEA)
Thales (HO) ★★★★☆ as primary holding, Leonardo (LDO) ★★★★☆ as complement
Their overall scores are separated by just one point (60 vs. 59). Thales retains the advantage on absolute value metrics (FCF yield 5.24%, P/FCF 19.09, EV/EBITDA 15.28). Leonardo wins on P/E (25.31 vs. 29.18) and Sharpe ratio (1.25 vs. 0.74), and is the only stock positive over 1 year (+12.21% vs. -2.46%). For a pure value investor, Thales remains the first choice. For a balanced profile, both belong in the portfolio.
Suggested allocation: Thales as the primary position in a balanced defense portfolio, Leonardo as a complement for diversification, dividend growth potential (24.51% payout) and its near-equal overall score.
Investors seeking growth and willing to accept high volatility
Rheinmetall (RHM) ★★★☆☆
The -23.4% correction since March 2026 has created analyst upside of +57% toward EUR 1,909.57, with the strongest buy recommendation of the trio (1.21). The balance sheet is the best of the three (debt/equity 0.40, interest coverage 14.77x). Operating margin of 17.13% is a record. The dividend yield has surged to 0.94%. Analysts project +47% EPS growth.
Caution: P/E remains at 77.37 and TTM growth is still negative (EPS -8.96%, revenue -8.66%). Next-quarter earnings confirmation 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 is a structural trend with a 10-to-15-year runway. All three companies benefit from this tailwind, and prices have partially rebounded since May 2026, offering a less urgent but still relevant entry window.
Thales remains the overall value champion (score 41, FCF yield 5.24%, overall score 60), with the stock back near March 2026 levels. Leonardo has strengthened its overall score to 59 and still leads on P/E (25.31). Rheinmetall offers a reinforced balance sheet, a sharply higher dividend (0.94%) and the strongest analyst conviction (1.21), but negative TTM growth warrants close monitoring.
Summary verdict:
- French investors (PEA): Thales, without hesitation — decisive tax advantage + best FCF yield + stock still slightly below March 2026 levels at EUR 237.80
- Swiss and international value investors: Thales as first choice (FCF yield and value score superior), Leonardo as complement (lower P/E, near-equal overall score at 59/60, strong dividend growth potential)
- Growth/speculative profile: Rheinmetall as a limited satellite position — the correction since March creates rebound potential, the dividend is rising and analyst conviction is strengthening, but negative TTM growth demands confirmation
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 June 2026, at EUR 237.80 (slightly below March 2026 levels), the entry point remains attractive. EPS has grown +61.83% (TTM), FCF yield reaches 5.24% and P/FCF stands at 19.09. The PEA tax saving (~19% over 10 years), combined with a value score of 41 and +25% analyst upside (EUR 296.60 target), makes Thales the optimal choice for French investors.
Thales or Leonardo for a standard brokerage account?
Both deserve a place in the portfolio. Thales leads on absolute value metrics: FCF yield 5.24% vs. 3.16%, P/FCF 19.09 vs. 31.62, EV/EBITDA 15.28 vs. 17.57, value score 41 vs. 35. Leonardo leads on P/E (25.31 vs. 29.18), Sharpe ratio (1.25 vs. 0.74) and 1-year performance (+12.21% vs. -2.46%). Their overall scores are virtually identical (59 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.
What is the correction risk after 2025's extraordinary gains?
The sector has already corrected from March 2026 peaks: Rheinmetall -23.4%, Leonardo -8.4%, Thales -1.5%. Over 12 months, Rheinmetall is down -31.37%. Risk still elevated for Rheinmetall: P/E 77.37 and TTM growth negative. Moderate risk for Thales: FCF yield of 5.24% and P/FCF of 19.09 provide a meaningful valuation cushion. Intermediate risk for Leonardo: P/E 25.31, but beta now above 1 (1.04).
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 46.62%) — highest yield at 1.64%. Rheinmetall (payout 35.31%, yield 0.94% — sharply higher since May) — 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. The NATO 2% GDP target has not yet been reached by most European members; several countries now aim for 3%. Major programmes (SCAF, new naval fleets, artillery modernization) run for decades. The order backlogs of all three groups are at all-time highs.
Sources and data
Financial data: FactSet via Portfolio123 (data as of 12 June 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).
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