Europe's Defense Shift: Ushering an Upturn for Eutelsat
A Space-focused, small-cap stock skyrocketed an astonishing 500% last week, likely escaping many investors' attention.
In the chaotic dance of global politics, a curious turn of events in President Donald Trump's tariffs battle and his threats to withdraw from NATO and cut off Ukraine's military aid, has oddly enough, stirred a new dawn for European defense renalization. Europe is now confronting the necessity of bolstering its own defense spending, prompting a surge in shares of European defense companies, including the little-known satellite telecommunications company, Eutelsat.
Among these defense stocks, Eutelsat caught my attention last week, skyrocketing over 500% in just five days of trading. From Feb. 28 through March 5, shares of Eutelsat, which can be easily pronounced as "EU telsat" to remind you of its industry, leaped from a mere $0.35 per share to $2.21. Although it's given back some of those gains, it still remains up more than 300% from its price at the end of February.
Diving into Eutelsat: The Unknown Giant
At first glance, you might brush off this spectacular performance from an obscure stock as a typical penny stock flare-up - overhyped, volatile, fleeting. However, things operate differently in Europe compared to the U.S. Mega-corporations like British Telecom and British Airways parent International Consolidated Airlines often trade at just a couple of bucks a share.
Similarly, Eutelsat, with a market cap of $3 billion and generating substantial cash flow, is a sizable company doing $1.4 billion in annual business.
Eutelsat's Sudden Boost
So, why this sudden and dramatic rise in Eutelsat's stock price? European Union nations are planning to ramp up their defense spending in response to the perceived threats from the U.S. The potential loss of Ukraine's access to SpaceX's Starlink satellite communications services, crucial for the war effort, has raised concerns among Ukraine's European allies. In response to this threat, Eutelsat has highlighted its OneWeb satellites that can serve as an alternative for certain government and defense applications. Additionally, the company is in talks with European institutions and business partners to enable the swift deployment of additional user terminals, to fill any potential gap caused by the withdrawal of Starlink services.
Looking Ahead: Europe's "-841 Billion Plan"
Eutelsat's OneWeb satellite constellation, though not as large or as capable as Starlink's, might just be the next best thing. And it could get even better. European nations are currently in talks to boost defense spending by up to $841 billion under a new "REARM Europe" program. If even a portion of these funds are devoted to military space capabilities, they could be used to build out OneWeb's capabilities and provide a significant boost to Eutelsat's revenue growth rate.
So, is Eutelsat a Buy?
With only $1.4 billion in annual revenue, earmarking just 1% of the EU's proposed defense spending increase for satellite services would be enough to grow annual revenue by over 60%. While analysts were expecting revenues to grow a mere 2.5% this year and losses to exceed $1 per share, increased spending could transform the scenario for Eutelsat. Much like increased spending on Starlink helped turn SpaceX from an unprofitable rockets company into a profitable satellites company, the same could potentially happen to Eutelsat. Only time will tell, but investors who have already bid the stock up seem to be banking on it.
- The surge in shares of Eutelsat, a European defense company, can be linked to the European Union nations' plans to increase defense spending.
- Eutelsat's increasing revenue growth rate may benefit from the proposed €841 billion defense budget increase in Europe, particularly if funds are allocated to military space capabilities.
- If just 1% of the EU's proposed defense spending increase is earmarked for satellite services, Eutelsat's annual revenue could grow by over 60%.
- Investors seem to be betting on Eutelsat's potential transformation, as the company's stock is already trading significantly higher, following the news of increased defense spending.
