Targeted Strategies for Today's Evolving Markets

MissionIR Blog

GeoEye, Inc (GEOY) – Tepid Q1 Financial Results may Hide Value

GeoEye, Inc (NASDAQ: GEOY) is the premier provider of earth imagery solutions to national security customers, resellers, and commercial and strategic partners. These customers use GeoEye products to provide military and national security analysis, urban planning, environmental monitoring (oceans, forests and other agricultural analyses), and fish and wildlife monitoring. The company provides its data through two satellites, two airplanes, and several network stations. It also boasts extensive data analysis capabilities.

In early May, the company released Q1 2008 financial results and discussed them in a related conference call. While actual revenue beat estimates by around $1 M, earnings were somewhat lower than expected due mainly to onetime items (hedging securities, and arbitration award) and unforeseen events (NOL disagreement with IRS). The stock had been trending lower, possibly due to the unknown effect of the NOL dispute.

While the Q1 2008 stock results reflected a challenging environment, there are bright spots that investors might consider. For instance, in August the company plans to add another satellite to its stable. This addition is well-timed because the other two satellites are approaching the end of their design lives. Dubbed GeoEye-1, this will be the highest resolution, commercial satellite in existence. During the conference call, the CEO implied that there have been inquiries from prospective customers about the company and its new satellite. Some of these potential customers appear to be those of its major competitor, Digital Globe. Since this is a high, fixed-cost business, the additional revenue will be welcome to offset the high fixed costs.

A second issue is that the company’s management does not communicate well with investors, possibly contributing to the lowering share price. Communication with the investment community always poses a dilemma to management. On the one hand, management wants to manage the company, not investor expectations. On the other, while these same executives realize that investors deserve a forthright explanation of company results and strategy, they often fail to follow through.

Here are a few examples of GeoEye, Inc’s poor communication: The Q1 management call was announced on the same morning as the actual call (rather than being announced a few days earlier), so there is no doubt several investors could not attend the call and ask questions. A second point: one investor noted that since GeoEye, Inc’s two satellites are fully depreciated, the company is trading under book value and asked why the company could not trumpet that fact. The conclusion is that improving corporate communication could improve the investment community’s understanding of the company and increase its share price.

Despite GeoEye, Inc’s tepid Q1 2008 results, which lowered its share price, it could be considered undervalued at this time. Its pending satellite launch could lead to new sources of revenue. The additional revenue, coupled with improved management communication of company results, may increase its value in the future.

Let us hear your thoughts: GeoEye Inc. Message Board

This entry was posted in Small Cap News. Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *