Investing.com -- After a significant rally, Goldman Sachs has upgraded Eutelsat to Neutral after previously rating the stock a Sell, acknowledging that its earlier call underestimated the upside risk from government support. 

“With the recent EC announced proposal to establish a loan fund of up to €150bn to support European defence spend, Eutelsat shares have risen materially (c.+550% in March),” wrote Goldman.

"We materially underestimated the upside risk from government support," Goldman Sachs wrote, noting that European governments' stance on defence and satellite funding has shifted at a scale and speed that far exceeded expectations. 

This shift is said to have significantly lowered debt costs for Eutelsat and amplified gains in the stock, given its high leverage.

Despite the upgrade, Goldman Sachs remains cautious on Eutelsat’s competitive risks, particularly from global satellite players such as Starlink. 

However, analysts now acknowledge that government spending has become the key swing factor in Eutelsat’s investment case, and they have adjusted their valuation approach accordingly.

“While there are still material uncertainties as to the potential revenue opportunity for Eutelsat, our Sell rating was the wrong call,” said the bank.

Two key changes underpin the upgrade. First, Goldman Sachs has incorporated the latest bond moves, which they estimate have boosted Eutelsat’s equity value by approximately €350 million. 

Second, they now estimate that incremental European defence spending could present a €2.4 billion net present value (NPV) opportunity for the company.

Goldman has raised its 12-month price target to €6.7 from €1.0, though this still implies 3% downside from the last closing price. The firm expects continued share price volatility until there is greater clarity on government contract formations with Eutelsat.

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