GeoEye – Potential From Eyes in the Sky

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GeoEye, Inc. – (NASDAQ:GEOY) is a provider of earth imagery, advanced imagery analysis and information services and geospatial information services.  Their customers include the United States and foreign government defense and intelligence organizations, domestic federal and foreign civil agencies, scientific and commercial customers.  Scientific and commercial users deal in archaeology, mining, agriculture fishing and energy exploration, among many other endeavors – not to mention that GeoEye also provides Google with imagery for Google Maps and Google Earth.

GeoEye’s newest satellite, the GeoEye-1, is the most accurate commercial Earth-imaging satellite with the world’s highest resolution. The company is also developing an even more advanced satellite called GeoEye-2.  In addition to satellites, GeoEye owns and operates three airplanes with advanced high-resolution imagery collection capabilities.   The company’s information services allow customers to collect, process and analyze geospatial data to quickly see precise changes on the ground and anticipate where events may occur in the future.

For investors looking for a long-term growth investment with the potential for 100% gains or more in a year or two, with relatively moderate – but very real – downside risks, we believe GeoEye is a company to look at.

GEOY shares are currently trading at about half the price of their 52 week high, but of course there are reasons for this that an investor must consider.  The main reasons for the fall in share price are that the company has been reporting disappointing earnings lately, as well as investor fears over the potential impact of US defense spending cuts and the economic uncertainty in Europe.  The company is also highly leveraged which could exacerbate the effects of a drop in revenues.

On the positive side:
* GeoEye is a dynamic company in a growing industry.
* Markets outside the US and Europe have the potential to offset any reductions in business from existing customers. For example GeoEye recently signed a large contract in Russia.
* The quality of GeoEye-1 and the in-development GeoEye-2 are a significant competitive advantage.
* The high cost of entering this business is a significant barrier to new competition.

GEOY’s P/E ratio is currently in the 10-11 range, which is low for the stock of a company with the long-term growth potential of GeoEye.  Of course as noted above, there are reasons the stock price is depressed.  For investors in GEOY, the next 12-24 months could see a 100% gain if the stock returns to its 52 week high, or a significant or even disastrous decline if GeoEye’s government business declines significantly.  But assuming the company survives the current economic crisis, the long-term gains should be excellent.

Insider transactions over the past 18 months have been fairly heavy (even when the stock price was much higher than now) and almost entirely consisted of buys.  At current price levels, insider buying has been especially heavy.  So it seems that the insiders appear to believe that the stock is a bargain.

For investors tempted to take the plunge, always remember to do your own due diligence, checking up company filings and consulting with an investment professional. For starters, more information about the company can be found at Geoeye’s main website, and its investor relations website. Additionally, remember to read our disclaimer.