DigitalGlobe management credited strong growth in its government business for the strong performance. Raymond James Analyst Chris Quilty highlighted the fact that, despite macro budget headwinds created by the merger, DigitalGlobe’s Defense & Intelligence segment grew 27 percent year-over-year, which were aided by an approximate $11 million bump in SLA payments and a surprising $5.5 million increase in value-added services (VAS).

   “While the SLA bump should be sustainable, management is less sanguine regarding future VAS funding levels,” Quilty said in an Aug. 1 research note. “We reiterate our ‘strong buy’ rating and $25 price target for DigitalGlobe after the company easily beat the consensus second quarter 2012 forecast and raised its full-year outlook in the face of material merger and acquisition costs that were above the line. While not reflected in our model, we believe the proposed acquisition of GeoEye will significantly boost DigitalGlobe’s growth and profitability, while decreasing the company’s risk profile, including government market exposure.”

   DigitalGlobe’s commercial revenues also increased 10 percent compared with the same period in 2011, with sales to international civil customers in markets such as Russia and China increasing 67 percent. The company’s revenues from location based service (LBS) providers, however, declined $4 million due to a single customer non-renewal.

The company’s backlog rose 32 percent to $355 million compared with the corresponding period in 2011.

   Quilty noted that an increasing percentage of DigitalGlobe’s customers are committing to long-term contracts as opposed to one-time orders, as recurring revenues now account for approximately 85 percent of the company’s annual sales.

   “We are raising our 2012 EBITDA forecast for DigitalGlobe by 2 percent to $182 million, while maintaining our 2013 estimate of $213 million,” said Quilty. “Our $25 price target assumes that DigitalGlobe can trade at a multiple of 6.5 over our 2013 EBITDA estimate of $213 million, which is within the stock’s three-year historical range. Our 2013 EBITDA forecast does not reflect the impact of the proposed GeoEye acquisition, which could include an additional $13 per share in value to DigitalGlobe.”