Bottom Line

Investing Thesis Remains the Same

It now appears that the hard part is over.

Those scared to put new capital to work in shares of GeoEye for fear of a launch failure, or some other mishap related to GeoEye-1 can rest easy, take a deep breath, and scrounge around their pockets for some money to invest in this great company.

I don’t know if you’ve looked lately, but GeoEye has vastly outperformed the market in the last 6 months or so, and will continue to do so from here on out.

For those looking for somewhere to put their money that does not depend on customer spending, the economy, or global economic forces, look no further than GeoEye.

This is truly a recession proof business as most of GeoEye’s revenues are derived from the U.S. government, and will continue to be regardless of what is going on around us, as the need for imagery to secure borders and monitor the earth will not be cut from any budget.

This is especially true in light of the fact that the the U.S. government, through the NGA, just paid 50% of the cost for the build, launch and insurance, on GeoEye-1.

You don’t spend $250 million and then not support the product you produced and violate presidential mandates.

On top of that, GeoEye is expanding their offerings and adding more customers and service level providers, like their deal with Telespazio in which they sell their imagery to others, and then are also still free to sell that imagery over and over again to anyone they see fit.

This is a stark contrast to how they used to do business whereby the service providers owned the rights to the imagery, and GeoEye would have to PAY the providers to use it and sell it again!

Stupid, I know.

At any rate, that is being rectified as we speak, and from here on out, GeoEye’s revenues, profits and free cash flow will explode as they enter into more and more markets and expand their reach and capabilities now that they have a constellation of satellites: OrbView-2, IKONOS and GeoEye-1.

With IKONOS having a life span estimated to run into 2010, and possibly beyond, GeoEye can now effectively provide more imagery to more customers and cover more of the Earth’s surface far quicker than they used to.

Add to that the fact that GeoEye-1 is the highest resolution commercial imagery satellite available on planet earth today, and you can see that demand will become insatiable.

Couple all of that with a bargain basement stock price (GeoEye’s market cap is BELOW the very value of GeoEye-1!), and once the year-over-year comparisons start flowing starting in 2009, the stock price will follow suit in short order.

I’ve been pounding the table for GeoEye for a long time now.

Nothing has changed.

Now even the risk averse can get into the stock with less trepidation knowing that the BASIC program has been delayed/canceled, GeoEye-1 is about to deliver useful and certified imagery and GeoEye is signing deals left and right to expand their product offerings and increase their coverage and revenue generating capabilities.

All you have to do is take a look at this quarter’s financials, which were still impressive, even with the sharp decline in orders from the NGA to see how a ramp up in sales will drop right to the bottom line.

You do the math and determine: what will those numbers look like once GeoEye begins to ramp up that revenue?

The hard part is over, now the fun begins.

New to the GeoEye story?

• Read my initial buy recommendation here.
• or listen to my EXCLUSIVE interview with GeoEye’s management team here.

*As of 11-11-08. Except share price, all values in millions.

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