BetterTrades looks at GeoEye Inc. - September 2, 2008

GeoEye Inc (GEOY), one of the world's largest commercial satellite imagery companies, delivers high-quality & the most accurate imagery & products to better map, measure, monitor and manage the world. GeoEye came about because of Orbimage's acquisition of Space Imaging in January. The company is the premier provider of geospatial data, information and value-added products for the national security community, strategic partners, resellers and commercial customers.

GeoEye operates a constellation of three Earth imaging satellites - OrbView-2, OrbView-3 and Ikonos, along with possessing an international network of regional ground stations, a robust image archive, and advanced geospatial imagery processing capabilities that are unmatched in the satellite imagery industry. Its products are the cornerstone of the remote-sensing industry enabling a wide array of applications including intelligence gathering for national security and defense, mapping, local government planning, and natural resources & environmental monitoring.

At the conclusion of last week, the company announced that they were confirming the launch of the world’s highest resolution satellite, used for commercial Earth-imaging, to take flight on September 4th, and be fully functional by last-October, once the system completes various calibrations and system checks. The satellite itself will be able to take color images of the Earth from 423 miles above and traveling at 4.5 miles per second.

Built by General Dynamics (GD), the GeoEye-1 will make fifteen orbits daily while being able to image objects as small as sixteen-inches in diameter. With the new satellite, it has the capability to re-examine any specified locale every three days, giving the end user the ability to have updated images on a regular basis, which is extremely beneficial to any large-scale mapping projects that require its services.

For the company, it was recently confirmed that Google (GOOG) maps and Earth, along with Yahoo (YHOO) and even gaming companies that have a specialized use for GeoEye’s imagery within the gaming applications themselves, are currently using the company’s imagery. Additionally, the company recently announced 2Q earnings in late-August that showed that the company was below the previous year’s figures in regards to overall earnings and revenues generated. Nevertheless, with that, the company did restate their earnings, which would show that 2Q figures were below expectations due to the recalculations.

With the financial statements adjusted, the company posted quarterly net earnings of $2.4M, or $0.12 per share, on total revenues of $43.2M. Both figures were down substantially year-over-year along with gross margins slipping nearly 70% from last year, and operating margins falling over 50%. In addition, even with the daunting presence of the numbers, they really do not appear to be quite that damaging. These numbers have been impacted by two other factors, one being the delayed launch of the GeoEye-1 satellite, and the decreased contracts provided by the National Geospatial-Intelligence Agency (NGA).

Within the industry there are only one other competitor, DigitalGlobe, and they have taken a back seat to GeoEye in the overall business model, future prospects, and overall management and execution. The stock currently has four analysts covering them and the consensus for the stock is a strong buy and was recently upgraded from a four-star pick to a five-star one. The company also possesses a few fundamentals that make this stock very appealing. Those include a trailing P/E Ratio of 11.24, which is relatively cheap, a Return on Equity (ROE) of over 27%, and Price/Book Ratio of 2.25. Looking ahead, the company is in position to better their margins and improve their bottom-line once the new satellite is fully operational and the company has the chance to start filling some of their backlog orders.

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