Please ensure Javascript is enabled for purposes of website accessibility

Why DigitalGlobe, Inc. Stock Fell as Much as 11.8% Today

By Steve Symington - Sep 24, 2015 at 5:06PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The satellite imagery specialist was downgraded by an analyst.

What: Shares of DigitalGlobe (DGI) fell as much as 11.8% early Thursday, then closed the day down 8%, following a notable analyst downgrade.

So what: Specifically, analysts at JP Morgan downgraded DigitalGlobe stock from "Overweight" to "Neutral" this morning, and simultaneously lowered their per-share price target on the satellite imagery specialist from $30 to $27. Even so, keep in mind that lowered target would still offer a hefty premium over yesterday's closing price of $20.65 per share, and is 42% above DigitalGlobe's current trading price at around $19 per share.

Now what: The downgrade also came despite a positive -- albeit largely expected -- press release from DigitalGlobe this morning, with which it announced the U.S. National Geospatial-Intelligence Agency (NGA) has renewed its Global Enhanced GEOINT Delivery program under the EnhancedView contract beginning this month.

But it also doesn't help that DigitalGlobe is still reeling from the company's most recent quarterly report, in which it beat analysts' expectations, but warned of "somewhat moderated" top-line growth in the second half of the year. According to DigitalGlobe CEO Jeffrey Tarr, to blame was their decision to avoid selling their highest quality 30cm imagery to some larger location-based services (LBS) customers at rock-bottom prices. To be sure, the nature of those customers' products -- including satellite views for web-based mapping services -- would mean making this unique imagery freely available on the web, which would undermine DigitalGlobe's value proposition to higher-margin customers in other verticals.

I've already made clear my personal view this was a prudent, long-term-oriented move by DigitalGlobe management. And it's worth noting with the help of DigitalGlobe's outperformance in Q2, the company was able to reiterate its prior outlook for 2015 revenue of $725 million to $750 million, and adjusted EBITDA of $355 million to $375 million. For perspective, mid-point of the former range sits well above analysts' current consensus estimates for 2015 revenue of $728.6 million. In the end, if DigitalGlobe manages to continue its streak of under-promising an over-delivering, I think this drop could be a great opportunity for long-term investors to step in.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

DigitalGlobe, Inc. Stock Quote
DigitalGlobe, Inc.

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.