Look! Up in the sky! Is it a bird? A plane? A satellite?
Well, yes, it is a satellite, and Motley Fool Rule Breakers recommendation GeoEye
What analysts say:
- Buy, sell, or waffle? Exactly one analyst keeps eyes on GeoEye, rating it a buy.
- Revenue. Said analyst predicts that quarterly revenue will drop 6.5% $39.5 million...
- Earnings. ...while profits more than double to $0.63 per share.
What management says:
GeoEye has two operable eyes in the sky right now -- the high-resolution Ikonos and the lower-res OrbView-2 satellites. Problem is, Ikonos only has a few years of life left in it, and OrbView-2 is entering obsolescence. Hopes are high that a new satellite, GeoEye-1, will put GeoEye back in the game, but on Jan. 12, launch partner United Launch Alliance (a joint venture between Boeing
Bad news for existing shareholders -- the day GeoEye filed notice of this risk with the SEC, the stock sank 10% -- but good news for Rule Breakers investors. The fortuitous timing of the announcement created an attractive entry price when we recommended the stock two days later.
What management does:
GeoEye's margin trends are equally attractive. When a business depends on two working satellites, and one not-yet-working unit, for its revenue, you'd expect a bit of lumpiness in the margins. Strangely, GeoEye has managed to grow both its gross and operating margins steadily over the last 18 months, though the net is still lumpy.
6/06 |
9/06 |
12/06 |
3/07 |
6/07 |
9/07 |
|
---|---|---|---|---|---|---|
Gross |
58% |
60.5% |
63.9% |
66.3% |
71.8% |
73.1% |
Operating |
11.5% |
23.6% |
28.6% |
32.1% |
39.1% |
40.9% |
Net |
(5.8%) |
10% |
15.5% |
(4.7%) |
5.7% |
32.1% |
One Fool says:
Summing up his investment thesis on the company in the February issue of Rule Breakers, fellow Fool Karl Thiel put it to us like this:
GeoEye faces a critical event with the launch of its newest satellite, but I believe there's an excellent chance of success. Best-in-the-world capability, government contracts, and commercial demand will unlock great growth for a little-known company that's undervalued even on the basis of its existing revenue and cash flow. It may make sense to withhold part of your investment until GeoEye-1 is safely in space, but you should definitely consider launching your journey with the only pure-play company in remote sensing.
I agree. Selling for just 12 times trailing earnings, but expected (albeit by just a single analyst) to grow those earnings at 20% per year over the next five years, GeoEye sure looks cheap to me. Then again, that valuation could change in a hurry if one or the other of GeoEye's still-working birds drops dead, or if anything goes wrong with the third satellite. This one's a gamble, folks, no doubt. But it might be worth a flyer.
On the other hand, if you like your risks less concentrated, consider investing in one of the several high-tech firms that sell to, and will benefit from, GeoEye's success -- while not necessarily depending on it. General Dynamics, Orbital Sciences