Don't show againBuy Alert: It’s Time To Lock Up Shares of GeoEye Immediately!
It’s time to start a large position in GeoEye Inc. (NASDAQ: GEOY), or add to your position if it is less than 3/4 immediately.
The provider of space based and aerial imagery is trading at a huge discount right now to its true value, and it won’t be long before the market realizes this (as has already started happening once GeoEye bounced off of its lows last week).
In addition, with upcoming catalysts, and insider buying, now is not the time to delay.
I would even advocate buying long term call options for those that are familiar with that strategy as within 3-6 months, GeoEye’s shares will be much higher than they are now.
In this post I’ll detail the reasons why.
This is a must read as we enter 2009 for those looking for somewhere risky, yet calculated, to put their money.
New to the GeoEye story?
GeoEye provides space-based, and aerial imagery and geospatial information through high-resolution and low-resolution imagery, imagery-derived products, and image processing services to customers worldwide.
This capability benefits a broad array of industries including national defense and intelligence, online mapping, state and local governments, environmental monitoring and land use management, oil and gas, utilities, disaster management, insurance and others.
Want more?
- Read my initial buy recommendation here.
- OR: listen to my EXCLUSIVE interview with GeoEye’s management team here.
- OR: Read my latest update on the company’s Q3/2008 earnings release and conference call here.
Let’s Start With the Catalysts
- GeoEye already successfully launched their latest satellite, GeoEye-1, a few months back.
All that awaits us now is the final approval by the National Geospatial-Intelligence Agency (NGA), which WILL be forthcoming any day now.
GeoEye-1
How can I be so bold and predict that the NGA will approve GeoEye-1’s imagery any day now?
Simple, and I’ll go into it in more detail below, but the recent insider buying, by not only the CEO but board members, leads me to believe things are going well in this department and it’s only a matter of time before GeoEye-1’s imagery is fully approved for sale to the NGA.
Let me put this another way: Would you buy $100k in stock of your own company (no matter how “cheap” it got) if your only source of future revenue and growth was destined to fail and not get the approval that you needed to produce revenue from it?
Nope, I don’t think so either.
I sincerely believe, and am keeping my money fully invested in GeoEye, because I now feel almost 100% certain that we are almost there.
Any day now we’ll get a press release telling us that GeoEye-1 is free to fly.
- GeoEye’s new Service Level Agreement (SLA) with the NGA and other customers means higher, more steady revenue.
I recently wrote about the good news that was recently announced whereby GeoEye would be getting a constant stream of revenue from the NGA for the next year to the tune of $150 million, matching 2008’s total expected revenue.
This contract does not even include GeoEye’s additional contracts with foreign vendors and governments, orders from the NGA above and beyond this SLA, and other commercial and business agreements to sell their imagery that GeoEye already has in place and will be instituting come 2009.
Analysts predict GeoEye’s full year 2009 revenue at about $277 million vs. $140 this year.
This means that GeoEye will just about double their revenue in 2009, and with it will come huge gobs of profit and cash flow because of GeoEye’s fixed cost, high-margin structure.
This also doesn’t include GeoEye’s newly announced deal with Telespazio whereby the European based satellite image provider has agreed to be GeoEye’s official reseller of satellite imagery in Europe and North Africa.
This and other similar deals like it that GeoEye has recently negotiated, will provide them with higher margin revenue and steadier profits due to their more linear fashion and as a result of agreements which allow GeoEye to sell any imagery they take from their satellite fleet as many times as they want without any compensation going to the regional or other affiliates as was done in the past (don’t ask me why!).
Looking at past EPS/Revenue/Margin figures is fruitless.
We are paying up for the future, not the past.
The SLA as well as other recently announced and renegotiated deals with GeoEye’s affiliates across the globe is just one more step towards smoothing out the revenue and profits that GeoEye can expect starting in a couple of weeks.
- Recent insider buying has picked up significantly.
It’s true that GeoEye’s stock has taken a dip here in the last few weeks for unknown reasons, but at the same time, insiders have rushed to purchase shares at rock bottom prices ranging from $15-16.00 per share.
This includes:
- CEO Matthew O’ Connell purchasing 6,250 shares at $15.93 ($99,562.00 total) on 12-19-08
- Board member Lawrence A Hough purchasing 5,000 shares at prices ranging from $14.87 - $15.40 ($75,500 total) on 12-19 and 12-22-08,
- and finally, board member Michael Horn who purchased 3,000 shares at $15.85 ($47,500 total) on 12-22-08.
The CEO also picked up 2,000 shares at $18.84 back in May for about $37,600 worth.
As I stated above, you don’t plunk down money in a company that is going nowhere, at least not close to $100,000.
If GeoEye-1 were having serious issues that management foresaw as being irreparable, then they surely wouldn’t be putting more money into a company that would be headed for bankruptcy.
Now let’s take a look at GeoEye’s valuation and future outlook…
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(28) comments to “Buy Alert: It’s Time To Lock Up Shares of GeoEye Immediately!”
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December 28th, 2008 at 7:26 pm
Hi Chris,
Thanks very much for providing such a thorough and timely report.
In your opinion, what percentage of ones portfolio you would recommend to have in GEOY, assuming, I am in my early 30s and have high risk tolerance. Can one go upto 5% of ones portfolio, or do you recommend keeping it below than 5% ?
Thanks again, for all the hard work you do. Your analysis is much better than lots of premium newsletter out there. And I know, because I subscribe to some of them.
- Anil
December 28th, 2008 at 7:32 pm
Anil,
Thanks I appreciate the kind words.
If you are in your early 30’s, then a stock like GeoEye could represent as much as 10-25% of your portfolio.
For me it represents about 30% of my holdings!
I believe in a very small and tight portfolio with only 5-10 stocks in it with different weights.
Of course, this assumes that you already own a home, have 6 months savings in the bank, are fully invested each month in a retirement IRA or 401k plan, etc.
The model portfolio that I use is for ONLY the riskiest portion of your money, so for that portion (perhaps 25-50% of your overall investing funds, all depending on age, risk, etc.), I would say it’s ok to go even higher like I have, with your stake in GeoEye.
You can take a look at my performance page for my holding’s percentage.
http://peakstocks.com/performance
Chris
December 28th, 2008 at 8:53 pm
Hi Chris,
Considering the expensive valuation of option contracts due to historically high implied volatilities, I find it more compelling and less risky to simply sell put contracts on GEOY rather than opening an equity position. Would you recommend this strategy? And if so, at what strike and expiration would be adequate? Of course, the caveat to all of this is that a strike price that is too low may prevent me from capitalizing on upside potential, but it also limits downside potential.
- Tony
December 28th, 2008 at 9:01 pm
Tony,
Great question and observation!
You are right that GeoEye’s options are expensive to a point because of the pending announcement of GeoEye-1 and there has recently been added options buying and selling which of course increases the implied volatility and price.
As for selling the puts, that could also work, the question would be to find a balance between risk/reward that works for you, and then not get angry if you “could have” made more…cause remember that you also “could have” lost more as well.
Chris
January 16th, 2009 at 12:20 pm
looks like the reason the CEO was buying was because the CFO was leaving and most likely the CFO will now sell big pieces of his own stock. CFO leaving = not good
January 17th, 2009 at 1:24 am
Shaun,
The CEO was let go. No reason was given, but I assume that it had to do with the problems that GeoEye had been having concerning their internal controls, and the delays in issuing their financial statements, and restating past financial statements.
Otherwise, it has no bearing on the company, even if the CFO decided to sell every single one of his shares.
Chris
January 21st, 2009 at 6:29 pm
Chris,
On your recent article about the 5 top small caps for 09, you recommend selling GEOY at above $32. Clearly, I am very new to all this, and I thought to ask you this specific scenario instead of searching the web.
Suppose you got into GEO at $18 and got 100 shares.
How many would you sell if it hit >$32?
What would be your sell limit in the worst case scenario? $5?
Thanks,
Matt
January 21st, 2009 at 6:34 pm
Chris- You wrote “The CEO was let go.” Who was let go, the CEO or the CFO? Henry or Matt? If Henry, why don’t you give him a call and see what you can learn?
January 21st, 2009 at 6:35 pm
Hey Matt,
This is a good question, but again as I said in that post below each sell recommendation price, consult the website before you do anything.
The sell price was merely a round figure that would represent what I feel, would be GeoEye’s fair market value for the shares of their stock, actually a little higher than fair, which I see in the mid $20’s.
So, if you never heard from me again, then yes, I would consider selling around $32, or at the very least, selling 50% of your shares, and then you can let the rest ride playing with the house’s money.
You might also do well to protect yourself on the downside and put in a tight stop limit as well once you did that to make sure your “Free” money also didn’t lose all its value.
But I think you get the point.
Chris
January 21st, 2009 at 10:21 pm
Mark,
Oops, you are 100% correct! I mean the CFO!
I did try to contact him, but alas, he is off the grid!
Chris
January 22nd, 2009 at 3:37 pm
Thanks Chris. He’s still at the company through March.
http://www.forbes.com/afxnewslimited/feeds/afx/2008/12/10/afx5805922.html.
“it has no bearing on the company, even if the CFO decided to sell every single one of his shares.” Clearly his shares mean little- it’s what he knows, and why he leaves, that matters most. If he was not-performing, then I agree. If he had a personality issue with Matt or others, fine. If he broke the law or had an “ethics” violation, etc. But if he knows that the business is tanking, or the new satellite is a dud,and someone as eager and dedicated as yourself can surmise that kind of info because he denies all other rationale- then, well then you have to consider getting out of this stock.
January 22nd, 2009 at 4:04 pm
Mark,
Yea, I read that the CFO was staying around for awhile, but I can assure you that that was merely for transitional purposes and no longer in an active capacity with the company.
If the CEO dumped his shares it would merely be because he is no longer with the company.
If the CEO dumped his shares, then there would be something to worry about.
But judging by the hoopla over the GeoEye-1 images that were released of the presidential inauguration, it appears to me that the imagery is there, just not the approval, or the software problem that has been plaguing the system thus far.
Chris
January 23rd, 2009 at 8:42 am
Again I think you meant to write CFO when you said, “If the CEO dumped his shares it would merely be because he is no longer with the company.”
But I don’t think you have given enough reason to justify that position, or you haven’t shared enough facts. You wrote that the CFO was “let go”. How do you know this? All we know is that the company reported that he resigned. The decision could have fully been his own, and it may have been because of something really wrong with the company. Or do you know for certain that this is not the case?
Furthermore, because you own the stock- or so I thought from reading this website, don’t you have some bias? Don’t you feel obligated to say good things about the stock, less you help drive the value of your own investment down?
Sorry if these questions seem strong; I’m taking a Critical Thinking class in my MBA program and I’m being taught to challenge assumptions and inferences.
January 23rd, 2009 at 3:15 pm
Mark,
First of all, there was no disclosure other than the CFO resigned.
But it was obvious from the happenings at the company, the restatements, the financials that were delayed time and again, that the CFO was not doing his job, or perhaps he was but he took the fall for whoever wasn’t that he was in charge of.
I know for certain that he would not just up and leave the company because if you listen to my interview with the CFO and the CEO a few months back (critical thinking!), you would have noticed that the CFO just purchased a brand new house in the area, and planned on settling down there for the long term.
Now, something else could have happened such as a death in the family, illness or other circumstances, but then why would he remain with the company in some capacity?
As for me regarding the stock, yes of course I am biased!
That’s why people come to my site, to get the research and analysis that a bullish perspective gives.
You are more than welcome to refute my thesis, and poke holes in it, in fact I would love that.
In the world of the markets, unfortunately, assumptions drive short term stock prices…long term, fundamentals and company values win out, but short term, it’s all about inference and assumption!
Chris
January 24th, 2009 at 2:05 am
Great points, Chris.
Now, in my experience, I would also guess that Dubois was canned for lack of performance. But most times when I’ve seen this in a larger company, the VP is immediately gone. It certainly could be a different scenario, however.
What if Dubois new about the accounting problems and was pressured by others to keep it under wraps? Maybe he resigned because he was unwilling to work in a deceitful environment and his morals caused him to leave? It’s just one possibility.
Website says “The company is currently conducting an executive search for a Chief Financial Officer. While the search is ongoing the Vice President of Accounting & Corporate Controller and Vice President of Finance & Planning will report directly to the CEO.” This tells me that the event wasn’t well planned; either Dubois surprised them, or O’Connell was forced to pull the trigger quickly.
O’Connell may feel like he’s got plenty of the stock. SEC shows he owns 179K shares. And he’s only buying little amounts.. 6K, 1K, 1K. Little else buying going on. Management doesn’t seem very bullish to me. Sprague and Abrahamson (both on the board, and Abrahamson is the chair!) were selling, so was the int’l sales manager (Colombi). There are plenty of them (http://finance.yahoo.com/q/ir?s=GEOY) and the price is relatively cheap now, so why aren’t they biting?
It also seems that when Harbinger Capital unloaded some 4-4.5M shares between sept and nov of 2007, the stock price stayed strong. They sold roughly 20% of the shares, if I am reading properly, and the stock still went up until Jan/Feb 2008. Any thoughts there?
I took a close look at the inauguration photo they posted on their website. Downloaded the high-res. If this really is half-meter, off of their newest bird, I expect better. Best you can do is “View in Google Earth”. Just zoom in close and look at the border between this new image and the ones taken by TeleAtlas, that surround the GeoEye-1 image. And I bet you’ll agree that the TeleAtlas image is MUCH better. (Now, if TeleAtlas shot aerial photography, that would be sufficient explanation for me, but what I am getting at is that the image isn’t all that impressive to me, and I wonder if they are having more trouble with the satellite and software than they let on.)
Anyhow, fun to speculate!
January 25th, 2009 at 12:50 am
Mark,
Sure, these are all plausible explanations, but the reality is that we’ll never know unless something is released, and anyone that does know, has access to illegal inside information.
As for the imagery, I do agree that the initial images are just ok, but who knows the reason why, and what’s going on.
Again, to speculate would be to read to much into some imagery posted on a website somewhere…
If you own stock and are uncomfortable with your research that you have done, I would highly recommend that you sell all of your shares of the bulk of your shares, that way, you would assuage your risk tolerance more, and could take a back seat and watch this from afar.
The CEO has plenty of stock by my estimation, and bought $100k worth 2 separate times…to me, in relation to his salary, that’s a huge chunk of change.
Others have sold sure, but the amounts have been relatively small to me, and could be explained by many different factors.
Again, all we are doing here is speculating, and worrying ourselves to death over minutiae.
Perhaps you should think about selling a lot of your holdings?
Chris
January 25th, 2009 at 10:12 pm
I don’t own any. Just having fun asking question on your site and I will enjoy seeing where this stock goes.
I think I am interested in the stock if it dips another 15%.
I found this interesting. “During the past 5 days, traders on the International Securities Exchange (ISE) have bought to open 1,630 puts, compared to just 44 calls. The security’s 5-day put/call ratio is a bearishly skewed 37.05.”
http://www.schaeffersresearch.com/commentary/content/option+activity+alert+put+volume+explodes+on+geoeye+inc/observations.aspx?ID=90477
I’m enjoying your site Chris. But where can we learn more about you? Any biography, or explanation of your education background, or successes in the markets?
Thanks
Mark
January 26th, 2009 at 1:10 am
Hey Mark,
Yea, it looks like there is more pessimism being built into the stock, which might be a good thing if they can finally announce that the imagery is being approved and lift the stock higher.
As for who I am and info about me, all you have to do is visit my “About this site” page as well as the “Investing Style” page and that will tell you all you need to know.
I have no formal degree in anything related to finance, and am self-taught.
My performance page is from the last year or so, admittedly not a good track record, but I am trying to start my results from scratch so as to show unbiased documented results when I crush the market over the long term, and how I did it.
My site is for patient investors, not day traders.
Thanks for reading!
Chris
January 26th, 2009 at 11:28 am
I don’t think anyone wants to try and time this announcement anymore by buying calls. I understand getting long with some insurance, but the short interest in this company is huge and will fuel a rally when/if it comes in the next few months. Forget about the put/call ratio and look at the number of shares short.
Short % of Float (as of 26-Dec-08)3: 13.20%
The radio interview with the CEO (posted on GEOY’s site) revealed a timeframe of about 4 weeks to cert (2 for software fix and release of imagery and 2 for NGA cert). That interview was on Jan 14th I think. Either way we will get an update on the Feb conf call. I believe news will in late March/April.
I spoke to Steve Balthazor (interim CFO) a few weeks ago. He couldn’t give specifics on anything obviously, but he did say that management is wrestling with whether or not to announce when images have been sent to the NGA for Cert (effectively saying that they fixed the software issues and now its just a formality). This could get more folks comfortable with the company in the short term. However, I’m less concerned with this issue as I believe we’ll get that announcement on the conf call if we’re lucky and they are at that point. I’m more interested in management’s poor communication regarding future earnings. We have contracts in place, now is the time to start providing guidance so when GEOEYE-1 is good to go, we get the pop this stock deserves and we won’t have to wait until second quarter numbers come out. I think the conf call in February is going to be very similar to the one in Nov unfortunately. I think we see a selloff following the call if they have nothing to provide in terms of guidance or cert news.
Do you think they will provide guidance? I’m sick of seeing this stock in the teens but I think this is where we live for months to come unless management can get their act together. I am urging everyone to please send investor relations an email asking them to provide wall street with a clearer picture into the future of the company.
January 26th, 2009 at 7:37 pm
Hey MC,
As for the short interest in GeoEye being so high, this is not as a result of straight shorting (anyone who would short the stock now on purpose is pretty foolish I think), but has more to do with the debt levels and the notes that are due.
I wrote a post about it that you can read here:
http://peakstocks.com/why-does-my-stock-have-a-high-short-interest-look-at-the-debt
It explains how companies like AAR, and GeoEye financed some of their debt via convertible notes, which cause the owner of the notes to short the underlying stock to hedge their loan, and guarantee profits.
As for guidance, nope, I don’t think GeoEye will ever give guidance, and frankly, that’s fine with me.
I wish all companies didn’t provide guidance because in one form or another, it always comes back to bite them.
GeoEye’s guidance is right in front of us though, in the form of the NGA revenue, piled on top of back logs, piled on top of future revenue from their European and Asian partners, as well as other domestic and foreign businesses.
I think analyst’s estimates are obviously too high now, seeing as GeoEye-1 is not yet selling or delivering any usable imagery yet, but close enough to the truth to be meaningful.
Chris
January 26th, 2009 at 7:51 pm
Chris,
Considering your last comment, should a person that would like to get into Geoy stock wait until after the Feb conf call and get it on the cheap? And if so, what is the date of that conf call?
Or is all that a bit too risky, ya know, just in case they have some good news?
MB
January 26th, 2009 at 8:05 pm
Hey Matt,
Well, as you know from reading this column, market timing is not my specialty, or my recommended approach for buying and selling stocks.
It just so happens that GeoEye is in a position where there might be some short term price movement one way or another, but the long term thesis still holds for me.
Aside from some of my other stock/ETF recommendations like the TBT, I usually advocate a buy and hold strategy.
GeoEye is no different.
Just use dollar-cost-averaging, and buy in 3rds or 4ths and make sure you scale in so that you get a fair price.
You’ll never time the absolute bottom or top, but as long as you made sound decisions on both ends, that’s all you can ask for.
Oh, and one more thing: make sure you allocate GeoEye in your portfolio to sufficiently diversify yourself should things turn south.
Chris
January 26th, 2009 at 8:16 pm
Thanks Chris,
I’ve read your site, so I understand your theme of investing. Do you know when the conf call is to take place?
MB
January 26th, 2009 at 8:34 pm
Matt,
I don’t know, but we are coming up on about 3 months in early February, so I would assume within the next few weeks or so.
Probably Feb 10th or thereabouts.
Chris
January 28th, 2009 at 6:28 am
I should be more clear. I’m not looking for actual guidance but more an indication of what google and telespazio mean to the revenue projections I’ve made for 2009. Don’t give out specific numbers just say that expected contractual revenue all in will be X and include the NGA. The NGA SLA should have popped this stock and it really didn’t. GEOEYE has no business trading where it is right now, which to me means this stock will pop big when we get the cert news.
I’m just so negative re management right now and I think the market agrees with me. We’re trading at $18 on very light volume in 2009. I believe the only reason we are trading below the pre-launch price is because management is not effectively communicating with the street. 5 months following launch, 3 months following the nov call and still nothing on the cert. All we can hope for is that they solve the software issue before the call and that makes the NGA cert a nonissue (i’m guessing that’s the case). I’m not holding my breath that we are anywhere near calibration at this point.
January 28th, 2009 at 5:18 pm
Hey Michael,
I do not think that the Google deal will add any significant revenue to GeoEye. It’s more of a marketing and branding tool than anything else.
The Telespazio deal might create much greater revenue, but how much remains to be seen, and I would have to speak with management more first to learn the impact of that.
The bottom line with everything is as you say, that it hinges on GeoEye-1 checking out and delivering imagery.
Again it is unclear whether or not other entities like Telespazio, and their deal with the Asian provider, would use the imagery for resale if it weren’t first approved by the NGA. That’s an important distinction to squeeze something out of the satellite just in case the imagery is not approved.
Finally, as for management, you are right, but this is nothing new with GeoEye, they’ve always done this, and I think that the very fact that they rely on the government for so much revenue means they also have to cater to their request for silence, or discretion.
We’ll find out soon enough, but again, I fear that we might be waiting till the end of Q1 before the cert. goes through.
I hope I am wrong!
Chris
February 17th, 2009 at 8:58 am
I do apologize as was following geoeye closely for a bit and kind of fell off a bit. Last I read was they had received a contract for some kind of ocean or water imagery. Please correct me if I am wrong there. I do know that everything was looking good, but wouldn’t be considered viable or acceptable in The space polaroid world’ until it received an approval from an agency. reading above, I believe it was touched upon.
Is that the issue and has there been any new news. I don’t know about the rest of you but Chris’ site and just a few others truly give lower priced stocks their due. I am spec thru and thru. My therapist says it is instant gratification. I call it learning to be a little more patient, but I cut get hit by a falling satellite walking out of my house today. so I like to go for the )) in roulette, except in speculative stocks. No, I do not consider it gambling, just didn’t have another analogy. I look forward to hearing more about geoeye.
staples
PS: MC…you made me laugh at a comment which isn’t insulting and I am not sure if it was intended or not. When speaking of geoeye, who had an IPO and a satellite put in to space, you wrote and I quote:
“5 months following launch”
I am like…OK, what launch exactly1
sorry I found it funny. again no dig intended.
February 17th, 2009 at 1:41 pm
Staples,
To get the latest updates on GeoEye, just plug in the umbrella page here:
http://peakstocks.com//topic/geoeye-nasdaq-geoy
Chris