Eutelsat's stock rally faces investor uncertainty in Europe

Eutelsat Communications SA has seen its stock rise nearly 300% this month, driven by the need for a European alternative to Elon Musk's Starlink. The shares surged by 554% in early March amid geopolitical changes that favor local operators. However, this rally is losing steam as investors seek clarity on potential financial support from the European Union. Analysts are concerned about Eutelsat’s ability to compete financially. The company is struggling to keep up with competitors like Starlink, which operates satellites closer to Earth, allowing for faster signal transmission. Although Eutelsat acquired OneWeb, giving it access to low-earth-orbit satellites, its size is still significantly smaller than Starlink's fleet. Eutelsat is facing serious financial challenges. It has €2.4 billion ($2.6 billion) in debt due over the next four years and plans to invest €2 billion in a European satellite communications project. Analysts from Morgan Stanley expect Eutelsat's free cash flow to remain negative until 2027, emphasizing the company's ongoing cash challenges. Short sellers remain active, with about 25% of Eutelsat’s shares available for borrowing. This indicates continued uncertainty around the stock’s future performance. While many analysts predict government support due to Eutelsat's strategic importance, they stress that without clear information on potential funding, it is difficult to determine the stock’s true value. Goldman Sachs has suggested that if Eutelsat receives a share of the EU’s €150 billion defense budget, its shares could rise to €6.7 each. This estimate is 36% higher than their recent closing price, but analysts caution about the significant uncertainties involved.