In March, I took a looking at the “Coming Satellite Image Boom.” These are companies that provide customers with satellite images, like you see on Google Earth. There are only two companies (that I know of) who operate in this field—GeoEye (NASDAQ:GEOY) and DigitalGlobe (NYSE:DGI).
This is what I wrote in March:
This is an appealing business because it has many applications from oil & gas to disaster rescue and government intelligence. What strikes me is that this could be a great business model because the entry costs are high (getting a satellite up there) and the variables costs are low.
I also highlighted a Denver Business Journal article from April 2009 which showed how much the government in getting involved in this industry. One analyst said, “The federal government appears to have decided to stop dating the industry and marry it.”
Why do I bring this up today? Because both stocks are soaring on the heels of a government contract:
Shares of DigitalGlobe and GeoEye Inc soared on Monday, after both companies received orders from the U.S. National Geospatial Intelligence Agency (NGA) to supply satellite imagery.
DigitalGlobe inked a $3.55 billion deal with the NGA under its latest EnhancedView program and raised the lower end of its 2010 revenue and earnings view ranges, it said in a statement.
According to the NGA website, the GeoEye contract is valued at $3.80 billion.
The companies would also immediately begin work on their new satellites as part of the contract, they said.
EnhancedView, also called the 'two-plus-two' program, is a U.S. government initiative to increase the use of imagery procured through the only two commercial providers - DigitalGlobe and GeoEye.
DigitalGlobe said it will supply satellite imagery deliveries to NGA from the WorldView satellite constellation under a service level agreement (SLA) amounting to $2.8 billion.
The EnhancedView SLA portion of the contract is sized $250 million annually, or $20.8 million per month, for the first four contract years, the company said.
The agreement also provides for up to $750 million for value added products, infrastructure enhancements and other services, Digital Globe said.
The deal, which will be effective Sept. 1, has a 10-year term, the company said.
The company now sees 2010 earnings of 40 cents to 55 cents a share, up from its prior estimates of 25 cents to 55 cents a share.
DigitalGlobe also raised the lower end of its revenue outlook range by $10 million, and now expects 2010 revenue of $340 million to $360 million.
Analysts were expecting earnings of 38 cents a share, on revenue of $341.8 million according to Thomson Reuters I/B/E/S.
DigitalGlobe has been up as much as 14% today, and GeoEye has been up as much as 19%.