Q3 2009 Earnings Call

November 10, 2009 8:30 am ET

By MG Siegler

Last year, there was a lot of coverage of Google (GOOG) striking a deal with satellite imagery company GeoEye (GEOY) to be able to use the high resolution images from its new GeoEye-1 satellite for their Google Earth and Maps products. The exclusive deal saw Google shift away from its partnership with rival DigitalGlobe (DGI), which provides many of Google’s rivals with imagery. Now, it looks like Google is back on board with a new DigitalGlobe satellite.

GeoEye (GEOY) is one of the few stocks I can find that is not overextended, yet still has a chart where prices are holding support. However, I did not want to expand the position ahead of earnings - Monday we had the results and all systems seemed to be go after the scare about a technical malfunction weighed on the shares.

Via Reuters

The SPADE Defense Index (DXS) continues to trend upward in spite of the five largest defense companies contributing subpar performance year-to-date.

Since what is referred to as the “Haynes bottom,” after CNBC host Mark Haynes’ call of a market bottom in March 2009, the SPADE Defense Index is up more than 44%. For the market chartist, the SPADE Defense Index has broken out from its moving averages.

Wednesday I sold my full position in GeoEye, Inc. (NASDAQ: GEOY), a provider of space-based and aerial imagery and geospatial information, at $20.75 per share.

The total amount in my portfolio was was for a 3/4 position out of a full position, accounting for about 25% of my portfolio.

On May 4, Bill Simpson wrote an analysis of DigitalGlobe (DGI). In their market debut Thursday, May 14, shares rose more than 13% from the $19-a-share offering price to close at 21.50. The offering price itself was higher than the expected range of $16 to $18.

The text of Mr. Simpson's original writeup follows:

Since January 2009, several companies have filed and gone public setting the stage for accelerated niche sector growth investments including;

Solarwinds is set this week for its IPO - a maker of network-monitoring software in Austin, Texas, that was founded in 1998 and has a steady history of operating and net profit over the past five years.

Thursday will mark an important day, not only for the IPO market, but more so for the company that is riding the recent deal pipeline to come public at a time when having access to the public markets is critical.

DigitalGlobe (DGI), one of only 2 U.S. companies that offer commercial satellite imagery (GeoEye (NASDAQ: GEOY) is the other), to both the U.S. government via the National Geospatial-Intelligence Agency (NGA), as well as commercial and business customers such as Google (NASDAQ: GOOG), will trade Thursday in a heated rush to take advantage of the window that has opened in the IPO market for established companies with real revenues and prospects.

I have been watching GeoEye (GEOY) for a few months based on a recommendation from my online bud Eric Jackson. He has been a long-time investor in the company - suffering through ups and downs - and highlighted the stock to me when it was in the upper teens. As with the rest of the market, the stock has been running hot and heavy, but after a solid earnings report Wednesday it was trashed - not so much on the earnings but on a potential issue that I'll get into later.

Long time readers will know I like niche / sector growth, with high moats. They are hard to find - GeoEye along with an upcoming IPO called DigitalGlobe (DGI) have a duopoly in their field. Per WSJ

GeoEye, Inc. (NASDAQ: GEOY), a provider of space-based and aerial imagery and geospatial information, hit us with some good news, and a whole host of bad news today.

With GeoEye’s only U.S. competitor DigitalGlobe (NYSE: DGI) going public later this week, lots of attention is being bestowed upon both companies as a true apples-to-apples comparison can now be made as it relates to their satellite fleets, valuations and prospects going forward.

Five Threats to the Market

Rick’s Cabaret: Time To Buy

Rick’s Cabaret International (NASDAQ: RICK): Rick’s stock has been on an absolute tear in the last 1-2 months, more than tripling in price from a low of $2.50, to $7.50 before Thursday’s pull back.

I have been watching the trends at Rick’s as well as the chart and volume patterns, and everything looks bullish aside from Thursday’s down move along with the rest of the market.

Although the industry got a teaser of what’s to come when Defense Secretary Gates announced the top line budget figure as well as some decisions regarding the fate of the largest programs and initiatives, the key event that will guide the sector’s performance over the next several months is the release of the line item details and program specifics found in the FY10 budget -- anticipated to provide specifics not just for the forthcoming year but the next several. These details are now expected, according to White House sources, sometime in May.

Overall, analysts have stated that there were no big downside surprises in the proposal and the shift in priorities had little impact on most firms. As we said last month, we needed to see whether additions in some programs would offset declines in others. Lockheed Martin (LMT) for example was seen as one of the big winners and big losers with the F-22 production begin shut down while the F-35 was expanded.

GeoEye (GEOY) 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.

It sells its Earth imagery take from its satellites to the US government, foreign governments and to commercial customers including Google (GOOG) for maps and their mobile apps.

GeoEye (GEOY) 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.

The key event that will shape the defense sector for the next year and beyond is when details of the defense budget are released in April (though we are hearing unconfirmed rumors that it could slip into May). While I could add to the budget speculation without any concrete information, instead I’ve decided to focus this commentary on...Clint Eastwood. Not because many of his characters stand for justice, truth, security, or that his gruff onscreen warrior persona is stereotypical of America’s soldiers out to fight the good fight, what comes to mind is the title of one of his movies, “The Good, the Bad, and the Ugly”. What better phrase can summarize what goes through the mind of an investment analyst focused on the defense sector these days.

Although the SPADE Defense Index beat the S&P500 for the ninth consecutive year in 2008, it was still down 36% and since January’s gains, the sector hasn’t fared very well in the market. So when I see that we are 50% below the Index’s high of last October, ugly comes to mind.

GeoEye, Inc. (NASDAQ: GEOY), a provider of space-based and aerial imagery and geospatial information, is finally coming into focus much like the company’s flagship satellite, GeoEye-1

The company reported its fiscal 4th quarter and full year 2008 earnings, and with the report and subsequent analyst conference call, soothed investor’s fears and gave a small preview of the earnings and revenue driver that GeoEye has become now that they are firing on all cylinders.