Market Overview

GeoEye Earnings Preview: EPS and Sales Growth Expected

GeoEye (NASDAQ: GEOY) is scheduled to report fourth-quarter 2011 results tomorrow, March 13, before the markets open. Shares have fallen since the release in February of a research report that outlined how budget cuts at the Pentagon could lead to less use of commercial imaging satellites. But that has not stopped beneficial owner Stephen Feinberg, head of Cerberus Capital Management, of buying shares in GeoEye. He has been doing so periodically since mid December, despite a recent agreement that Cerberus will not acquire more than 29.99% stake in GeoEye.

Analysts anticipate GeoEye will report that its per-share earnings came to $0.58 for the quarter and that revenue totaled $89.9 million. In the same quarter of last year, the satellite imaging products company posted $0.42 per share and $82.5 million in sales. That EPS estimate is unchanged over the past 60 days. But note that GeoEye fell short of consensus EPS estimates in the previous quarter, ending a streak of earnings beats that went back more than eight quarters.

Looking back to the previous quarter, the retailer reported that revenues totaled $85.8 million, which was an 0.8% decrease year over year. Adjusted net income came to $11.7 million, or $0.51 per share, as compared to $13.6 million, or $0.61 per share, in the year-ago period. Both the EPS and revenue numbers missed analysts' expectations, and GeoEye offered disappointing full-year guidance, which sent shares down 17% following the report.

For the full year, the consensus forecast calls for earnings of $2.02 per share on revenue of $349.5 million. That is in line with the previously released guidance and would be up from $1.99 per share and $330.3 million last year. This EPS estimate also is unchanged over the past 60 days.

The Company

GeoEye provides earth imagery, related information products and image processing services to the U.S. and foreign government defense and intelligence organizations, domestic federal and foreign civil agencies, and commercial customers. The company owns and operates two earth-imaging satellites and three airplanes with high-resolution imagery collection capabilities. GeoEye is headquartered in Herndon, Va., and has a market cap of $437.1 million.

Competitors include DigitalGlobe (NYSE: DGI), Orbital Sciences (NYSE: ORB) and Trimble Navigation (NASDAQ: TRMB). DigitalGlobe missed fourth-quarter EPS estimates by two cents and warned about the “more restrictive government funding environment.” Orbital Sciences topped EPS expectations but its revenues fell short. Trimble Navigation offered strong Q4 results and better-than-expected guidance.

See also: Trimble Navigation Up 5.7% on Strong Earnings and Guidance

During the three months that ended in December, GeoEye announced $25 million in new contracts and changes to its board of directors. Besides the insider buying mentioned above, four directors and a senior vice president also bought shares.

See also: GE Aviation Signs Agreement with GeoEye for 3D Airport Maps

Performance

GeoEye's 9.3 P/E ratio and 0.6 PEG ratio are lower than the industry averages. The price-to-book ratio is 0.9. The company has a long-term earnings per share growth forecast of 13.3% and an operating margin that is better than the industry average. Short interest is 8.2% of the float. Half of the eight analysts surveyed who follow the stock recommending buying it; none recommend selling. Their mean price target on the shares is 33.2% higher than the current share price.

Shares ended the week by rising 3.8% on Friday, but the share price is still 49.5% lower than a year ago. The price has declined 15.5% in the past month, bringing it close to the 52-week low again, as well as falling below the 50-day moving average. Over the past six months, the stock has underperformed the competitors mentioned above, as well as the broader markets.

ACTION ITEMS:

Bullish: Investors interested in exchange traded funds invested in GeoEye might want to consider the following trades:

  • Vanguard Extended Market Index ETF (NYSE: VXF) is almost 13% higher year to date.
  • iShares Russell 2000 Growth Index (NYSE: IWO) is more than 12% higher year to date.
  • WisdomTree Small Cap Earnings (NYSE: EES) is more than 10% higher year to date.
  • PowerShares Aerospace & Defense (NYSE: PPA) is more than 9% higher year to date.
Bearish:

Traders may prefer to consider these alternative positions in the same industry:

  • DST Systems (NYSE: DST) is up more than 19% year to date.
  • Dun & Bradstreet (NYSE: DNB) is up more than 13% year to date.
  • IHS (NYSE: IHS) is up almost 12% year to date.
Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

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