DigitalGlobe Satellite Images Making Sales, Headlines

By
A A A
Share |

It's not every day that a company finds itself in the middle of an event that reads like a Cold War spy novel.

That's what happened withDigitalGlobe ( DGI ) recently. The company provides space imagery and geospatial content. It collects satellite and aerial images used for defense and intelligence, mapping and environmental monitoring.

In late November, DigitalGlobe released images that appeared to show North Korea moved sections of a long-range rocket to a launch site in preparation of a long-range ballistic missile test.

In a Nov. 26 statement, DigitalGlobe said that "given the observed level of activity noted of a new tent, trucks, people and numerous portable fuel/oxidizer tanks, should North Korea desire, it could possibly conduct its fifth satellite launch event during the next three weeks."

The news quickly caught the attention of government leaders around the globe. North Korea is under U.N. sanction for its nuclear weapons program, but has often flaunted its arsenal to all who cared to see.

According to a Dec. 3 Reuters report, the launch is still scheduled to take place between Dec. 10 and Dec. 22 after being postponed in November.

Big News

In addition to bringing international attention to North Korea, the news also brought attention to DigitalGlobe.

In a note, JPMorgan analyst Paul Coster called the event a "mild positive" for DigitalGlobe.

"It's a timely reminder of the value of commercial earth observation satellites," he said.

DigitalGlobe operates in two segments: Defense & Intelligence and Commercial. Its customers include everyone from urban planners and telecom firms to U.S. agencies like NASA and the National Geo-Spacial Intelligence Agency, a unit of the Department of Defense.

The company was founded 20 years ago as WorldView Imaging. It had its initial public offering in May 2009. As recently as 2005, it had less than $100 million in annual revenue. Last year, it posted $340 million.

The profit picture has been a little cloudier with DigitalGlobe logging annual earnings declines in 2010 and 2011. That run should end in 2012, however. Analysts expect DigitalGlobe to pose double-digit or better earnings gains in each of the next four years.

The company's imagery solutions support a number of uses in defense and intelligence, mapping and analysis, environmental monitoring, oil and gas exploration, infrastructure management, Internet portals and navigation technology.

Meanwhile, DigitalGlobe also drew headlines over the summer when it announced plans to merge with rival satellite companyGeoEye ( GEOY ) in a cash and stock deal valued at $900 million. The transaction was announced in July and is expected to close by the end of next quarter.

Under terms of the deal, the combined company will retain the DigitalGlobe name as well as its executive leadership, including Chief Executive Jeffrey Tarr. DigitalGlobe shareholders would control 64% of the company. Its board would hold six of 10 seats.

GeoEye in May attempted to acquire DigitalGlobe for $792 million, but that offer was rejected by DigitalGlobe officials.

One advantage of the merger is that it should reduce DigitalGlobe's reliance on the U.S. government, its top customer.

This is especially important in the face of expected cuts in the defense budget.

DigitalGlobe and GeoEye both supply products to the commercial market, including imagery to location-based applications such as Google Maps.

The deal also should result in cost savings and greater efficiency, watchers say.

"There is significant upside to estimates of EBITDA and free cash flow after DigitalGlobe acquires GeoEye," said James McIlree, an analyst at Dominick & Dominick.

When the merger was announced, DigitalGlobe said the deal would yield net future savings of $1.5 billion, thanks mainly to fewer expenses associated with building and launching satellites.

Sales Growth

Financially, GeoEye has had a slightly better go of it in recent years. The company logged earnings gains each year from 2009 through 2011. Sales have grown at an average annual compounded rate of 22% over the past five years. That compares to a 17% growth rate for DigitalGlobe.

But DigitalGlobe has accelerated its growth pace this year with sales rising 22% through the first three quarters of 2012.

The company posted revenue of $107.2 million during the third quarter. That was up 31% from a year earlier, its best gain in years, and easily topped Wall Street estimates for $97.7 million.

"Our results are evidence of our progress transforming DigitalGlobe into a high-growth, scalable, recurring revenue information business," CEO Tarr said in a statement.

Revenue in DigitalGlobe's commercial business climbed 57% from a year earlier to $26.1 million. Revenue in its defense and intelligence business gained 24% to $81.1 million.

"Commercial revenue was strong across each segment: location-based services, international civil government, joint ventures in Russia and China and other industry verticals," analyst McIlree noted.

Earnings for the quarter came in at 18 cents a share, up from 2 cents the prior year and 4 cents above Wall Street estimates.

DigitalGlobe's stock price hit a 15-month high of 27 on Oct. 31.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: DGI , GEOY

Investor's Business Daily

Investor's Business Daily

More from Investor's Business Daily:

Related Videos

Form 990 Explained
Form 990 Explained                  

Stocks

Referenced

100%

Most Active by Volume

128,306,932
  • $60.84 ▼ 0.85%
89,644,283
  • $3.195 ▲ 0.79%
69,138,516
  • $16.34 ▼ 0.18%
67,996,983
  • $4.35 ▼ 1.58%
45,833,963
  • $87.59 ▲ 0.96%
40,667,300
  • $46.28 ▼ 2.42%
38,947,294
  • $26.16 ▼ 0.34%
38,107,217
  • $39.86 ▲ 0.43%
As of 4/24/2014, 04:04 PM