On Monday, Goldman Sachs (NYSE:GS) revised its stance on Eutelsat Communications (OTC:EUTLF), a prominent satellite operator, changing the company's rating from "Buy" to "Neutral." The investment bank also adjusted the target share price sharply downwards from €14 to €4. This reassessment comes in the wake of concerns regarding the financial implications of Eutelsat's recent merger with OneWeb, increased capital expenditure forecasts, and a competitive market landscape.
Eutelsat's shares experienced a downturn early Monday, dropping by 3.2% at 10:10 am UTC on the Paris Bourse, which was in stark contrast to the SBF 120 index's slight 0.1% decline. The company's stock suffered as Goldman Sachs analysts pointed to the potential negative impacts on profitability due to the OneWeb acquisition. The heightened structural costs associated with the development of low Earth orbit (LEO) satellite technology and the challenges presented by competitors like SpaceX's Starlink have added to Eutelsat's financial pressures.
Analysts at Goldman Sachs have raised concerns that the integration with OneWeb may not be as financially beneficial as previously anticipated. They predict a significant increase in capital expenditure, estimating an average annual capex of €840 million (EUR1 = USD1.0951) from 2024 to 2030, mainly due to rising operational costs. This forecast exceeds earlier projections and could potentially offset revenue gains expected from the merger.
The investment bank's report also highlights the importance of precise capital allocation and project timing for Eutelsat's medium-term free cash flow, which is seen as highly susceptible given the current economic environment of escalating interest rates. The analysts suggest that there is 'limited' potential for an upward movement in Eutelsat's stock value, signaling investor caution as the company navigates through these challenges.
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