GeoEye: New Satellite's Imagery Approved by NGA

| About: GeoEye, Inc. (GEOY)

GeoEye LogoGeoEye 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.

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GeoEye-1 Imagery Officially Approved by the NGA

Service Level Agreement (SLA) now in full effect

GeoEye announced Friday right before the market closed that their GeoEye-1 satellite’s imagery has been approved by the National Geospatial-Intelligence Agency (NGA) and that the company can now begin to realize the full revenue and benefit from the satellite being fully active and usable.

The SLA also includes imagery from GeoEye’s IKONOS satellite, but will mostly be as a result of the increased imagery capabilities of GeoEye-1.

This was a widely anticipated announcement, and almost anticlimactic…ALMOST!

According to the company’s release, the NGA notified GeoEye that imagery from the GeoEye-1 satellite has been certified as meeting their stringent requirements for quality, accuracy and resolution, and will begin delivering that imagery to them immediately, starting on Monday February 23rd, 2009.

From what I understand, the SLA is a baseline figure and amount, and the NGA is likely to order additional imagery on top of this SLA, in addition to GeoEye garnering revenue from all its other customers including Google (NASDAQ: GOOG), and foreign governments that account for about 35-45% of revenue.

The value of the SLA is $12.5 million per month for a period of one year, which would equal about $150 million over a 12 month period, or greater than all of GeoEye’s sales the entire year of 2008.

Again, this value doesn’t even include additional sales from the NGA, retail customers and foreign governments which would push GeoEye’s revenues much higher (analysts are expecting $260 million in revenue in 2009).

So what does this mean?

Essentially what this does is create a smoother and more predictable stream of revenue for GeoEye which has long been a problem for them from quarter to quarter.

This will also increase their margins and profitability as they will be able to assign certain predictable amounts of manpower to the tasks at hand, know when and where certain jobs need to be accomplished and better utilize their infrastructure.

For the NGA, this agreement also provides them with a predictable stream of new imagery that they can count on getting BEFORE GeoEye goes off and sells additional imagery, or takes new imagery for other partners whether commercially or for foreign governments.

This is essentially a win-win for both parties, actually for all parties involved either directly or indirectly, and will go a long way towards securing GeoEye’s promise for increased fundamentals next year.

With today’s final announcement that the imagery has been deemed acceptable by the NGA and that GeoEye will begin to deliver that imagery to the NGA and its other customers, we can officially close the book on this ongoing saga from the long delayed launch of GeoEye-1 (over 1 year), to the delays in actually getting usable imagery out of the satellite, to finally realizing the true income and revenue generating capabilities of GeoEye-1.

We’re finally here boys!

We can now sit back and watch as Wall Street analysts and the market in general, trips over themselves to raise estimates, cover shorts, and as GeoEye accelerates their top and bottom line and starts to fill their coffers with cash to cover their debt load, watch as the stock rises as a result.

Bottom Line

GeoEye remains my #1 pick, and today’s news only bolsters that fact.

The stock was trading up in after hours, and I know that this is just the kind of news and validation that Wall Street was looking for before purchasing more GeoEye shares.

Even if the stock doesn’t “pop”, the earnings driver that is GeoEye-1, will force analysts and Wall Street to start to revisit the GeoEye story as a growth stock, especially at these depressed levels.

My patience has finally paid off, almost 1 year later, but that’s why I firmly believe in long term investing.

You have an advantage over other investors and Wall Street when you do your research, diligence, and couple that with patient investing and a buy and hold strategy.

We can finally sit back and start to enjoy some of the fruits of our labor over the next 8-12 months or so.

Enjoy the gains folks!