We wind down 2011 with our annual look at notable events as seen through the eyes of Earth observation sensors, beginning on page 12. With new sensors and systems being introduced all over the globe, observing the planet is becoming more thorough each year.
UAVs already are being used quasi-commercially by the government. The U.S. Border Patrol will have six Predators operating along the U.S. Southwest border by year's end, where they've helped spot and apprehend more than 7,500 people since first deployed in 2005. Additionally, the U.S. Geological Survey is having great success across a range of applications with its fleet of Raven small UAVs.
Twin Sons of Different Mothers?
No, not the classic 1971 record album featuring the late Dan Fogelberg with jazz flautist Tim Weisberg”I mean DigitalGlobe and GeoEye. At a glance, the companies appear to be identical. Both receive the bulk of their revenue from government and military contracts (see contract updates on pages 6 and 7), although GeoEye currently has more commercial sales.
The most recent earnings reports from the companies show even more congruency. DigitalGlobe's Q3 revenue was $81.3 million, while GeoEye reported $85.8 million”both roughly flat from Q3 2010. Additionally, shares of the two public companies seem to trade virtually in lock step with one another (see charts below). So what's the difference?
One analyst who follows both companies, Canaccord Genuity's Jeff Rath, says of DigitalGlobe, We continue to believe that success in the commercial business will likely drive a higher valuation multiple for DGI over time and are encouraged by the improving growth outlook.
As for GeoEye, Rath says, While the renewal of the EnhancedView award is positive, the outlook across all businesses appears uncertain and growth expectations are tempered. Rath has a buy rating on DigitalGlobe and a hold on GeoEye, with identical $33 price targets.
Is a Sale Imminent?
Meanwhile, takeover speculation has been rampant. OnJuly 26, 2011, a Wall Street whisper that GeoEye could be bought sent its shares soaring nearly 20 percent intraday in massive trading volume to close up more than 17 percent at $42 a share. But when the unsubstantiated speculation lost steam, the shares fell off a cliff, tumbling nearly 30 percent to around $30 in just weeks.
We've witnessed a host of consolidation within the Earth observation industry during the last decade, particularly the last several years. Companies like Astrium and others remain on the prowl for aggressive growth through acquisitions. So it wouldn't be a huge surprise to see DigitalGlobe or GeoEye snapped up for the right price. After all, while the United States may be falling behind other nations in some competitive areas, these two companies represent the best of breed in global Earth observation
” Jeff Specht, publisher, Earth Imaging Journal