Don't show againGeoEye Finally Starts Meeting Expectations, Stock Follows Suit
GeoEye, Inc. (NASDAQ: GEOY), a provider of space-based and aerial imagery and geospatial information, is finally coming into focus much like the company’s flagship satellite, GeoEye-1
The company reported its fiscal 4th quarter and full year 2008 earnings, and with the report and subsequent analyst conference call, soothed investor’s fears and gave a small preview of the earnings and revenue driver that GeoEye has now become now that they are firing on all cylinders.
My investment thesis has played out beautifully with GeoEye, with a great deal more good news still to come.
But with shares up about 50% in the last few weeks, should you be adding to your position or holding for now?
What follows is a summary of GeoEye’s earnings announcement and conference call, and what you need to know if you own, or are thinking of owning the stock.
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.
GeoEye operates in what in essence is a duopoly with only one other U.S. competitor, DigitalGlobe (NYSE: DGI), and just recently launched and certified their latest satellite, GeoEye-1, which is the most accurate and detailed commercial imagery satellite available today.
Want more?
- Read my latest earnings preview here.
- OR: read my latest buy recommendation here.
- OR: listen to my EXCLUSIVE interview with GeoEye’s management team here.
I’ll break down this report into 4 parts:
- Hit Me With The Numbers: Sales, Earnings: All Down, I’ll Explain
- Other Business Highlights: Expanding Workforce, SLA with NGA Extended
- Conference Call Highlights: GeoEye Starting to Finally Meet Expectations
- Bottom Line: GeoEye is Still a Go
Hit Me With Some Numbers
Sales, Profit Down as Expected
Here are some of GeoEye’s earnings highlights (growth from previous year’s Q4 and full year/analyst’s estimates where applicable):
- Q4/2008 sales of $40.7 million (down 6.7%, from $43.6 million in the prior year/vs. $34.9 million projected by analysts)
- Q4/2008 operating income of $3.65 million (down 76.9%, from $16.0 million in the prior year)
- Q4/2008 net loss of (-$3.6) million, or (-$0.20) per diluted share (down from $6.97 million, or $.42 per diluted share in prior year/vs. $.00 per share projected by analysts)
- Q4/2008 Gross margin of 46.7% (down from 55.2% from prior year, but up from 43.5% in Q2/2008, and down from 49.9% in Q3/2008)
- Q4/2008 Operating margin of 9.0% (down from 36.7% from prior year, down from 15.4% in Q2/2008, and 23.1% in Q3/2008)
- Q4/2008 Net margin of -8.9% (down from 16% from prior year, down from 7.0% in Q2/2008, and 16.8% in Q3/2008)
- Full Year 2008 sales of $146.7 million (down 19.8%, from $183.0 million in the prior year/vs. $139.9 million projected by analysts)
- Full Year 2008 operating income of $22.8 million (down 71.2%, from $79.2 million in the prior year)
- Full Year 2008 net income of $26.6 million, or $1.36 per diluted share (down 6.7% from $28.5 million, or $1.44 per diluted share in prior year/vs. $.42 per share projected by analysts)
- Full Year 2008 Gross margin of 48.0% (down from 64.7% from prior year)
- Full Year 2008 Operating margin of 15.5% (down from 43.3% from prior year)
- Full Year 2008 Net margin of 18.2% (up from 15.5% from prior year)
My Take: The numbers certainly weren’t great as was expected because of the delayed launch and check out of GeoEye-1.
In addition, there was a large discrepancy that you’ll notice on the net income line.
GeoEye showed a net income of $26.6 million for the full year 2008 time period, which grossly inflated their earnings per share figure to $1.36 per share.
These are phantom earnings as they were purely as a result of a one-time income-tax benefit resulting from the reversal of charges recorded in 2007.
This change resulted from the reversal of the accrued tax penalties and interest for the cost-share payments under the NextView program with the National Geospatial-Intelligence Agency.
If you back that out of the equation, you get a net-real earnings of about break-even for the year, or $.00 per share in earnings.
Obviously as we all know by now, these numbers didn’t affect the stock price, and aren’t what analysts are looking for anyway.
We all knew that both the top line and bottom line would be bad because of the continued delays in GeoEye-1 launch and check out, so all we care about is what’s going to happen from here on out.
I’ll explore that in the coming sections.
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(2) comments to “GeoEye Finally Starts Meeting Expectations, Stock Follows Suit”
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April 6th, 2009 at 1:12 am
Great post, I have question about the lowered recommendation. Did you lower it because of the stock price being in the mid 20’s therefore making it hard for an investor to profit by buying shares in the $25 range. Especially, after the great news and conference call have past, and that the stock price has more of a downside risk than an upside to it at these price levels? I also have a long term view for this company, but are you saying it would be wise of me to sell some shares I purchased for $17, take the profits, and buy more when the price goes back down into the teens? What would you have to see in the future to reconsider raising your recommendation to a STRONG BUY? Keep up the great work. -James
April 6th, 2009 at 1:56 am
James,
Yes, my lowered recommendation was merely because of stock price only, not because of any other concern.
Now, I wanted to reiterate that I still have a Buy recommendation on the stock, and can make a conservative justification that the shares should be priced in the low $30’s and be fairly valued, which means I still think shares are undervalued, just not significantly as they were when the stock was below $20 per share.
As for whether or not to sell, that is a very personal decision that you should make based entirely on your own asset allocation, risk tolerance, and overall weighting that GeoEye comprises in your current portfolio.
A higher stock price means the shares are now a larger portion of your portfolio, and for this reason alone, you might consider taking 1/4 off the top and locking in the gains.
I hope this clears things up a little bit for you.
Chris