Analyst: Rumors of NGA EnhancedView Cuts for DigitalGlobe Overblown

   DigitalGlobe fourth quarter 2011 revenues increased 17 percent year-over-year to $97.7 million — a record for the company and well above analysts’ consensus forecast of $92.9 million. The company’s fourth quarter EBITDA, however, remained flat at $61.4 million while also beating its consensus target of $60.3 million.

   The imagery firm’s commercial revenues increased 36 percent compared with the same period in 2010, with 2011 fourth quarter sales to international civil governments growing about 74 percent aided by a five-fold increase in business with Russia and a 29 percent increase in services deployed to China. DigitalGlobe location-based service revenues declined 5 percent from last year, though DigitalGlobe said it recently began generating revenue from a new customer.

   DigitalGlobe CEO Jeff Tarr highlighted the company’s near-perfect performance on its EnhancedView program with the U.S. National Geospatial-Intelligence Agency (NGA) through five quarters, hinting that his primary competitor, GeoEye, could bear the brunt of any cuts. Raymond James Analyst Chris Quilty hailed DigitalGlobe’s 2011 year-end performance and reiterated his firm’s “strong buy” rating driven by its potential business with the NGA.

   “The NGA has not yet notified DigitalGlobe that it intends to renegotiate or cut its EnhancedView contract, lending substantiation to our view that expectations of an imminent 40 percent cut [in program spending] are likely overdone,” Quilty said in a statement to Satellite TODAY Insider. “Despite recurring rumors, DigitalGlobe has not yet received any indications that its contract will be cut or renegotiated. A joint DNI/OSD study of the commercial imagery market, due mid-April, will likely set the tone for any future cuts.”

   Tarr’s forecast for DigitalGlobe 2012 revenue growth is 10 percent — slightly more conservative than analysts’ consensus of 12.5 percent. DigitalGlobe slightly lowered its 2012 EBITDA margin forecast from between 55 percent and 60 percent to a firm 50 percent.

   Quilty issued initial 2013 revenue and adjusted EBITDA estimates for DigitalGlobe at $401 million and $219 million, respectively. “Our forecast is admittedly subject to downward revision, but we believe that major cuts to the EnhancedView program are more likely to occur in 2014 or beyond, and will be less severe than the 40 percent cut recently rumored. We believe the cut will be between 10 percent and 20 percent,” said Quilty. “Consequently, we believe a modest cut to the EnhancedView program would actually be a positive event, effectively de-risking the story and enabling DigitalGlobe stock to trade at a premium to its historical range.”