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DigitalGlobe, GeoEye shares jump on $7.3 billion govt order

BANGALORE (Reuters) - Shares of DigitalGlobe DGI.N and GeoEye Inc GEOY.O touched life-time highs on Monday after the companies received $7.3 billion worth of orders to supply satellite imagery to U.S. intelligence agencies.

The companies received the new contracts under the U.S. National Geospatial Intelligence Agency (NGA) EnhancedView program, which also calls for the construction of new satellites by these companies.

EnhancedView, also called the ‘two-plus-two’ program, is a U.S. government initiative to increase the use of imagery procured through the only two commercial providers in the country - DigitalGlobe and GeoEye.

“The contract will have a significant impact on our revenue and growth profile both for the balance of 2010 and over the long-term,” said Jill Smith, chief executive of DigitalGlobe, on a conference call with analysts.

The company said the contract provides it the ability to double its 2009 revenue of $281.9 million in three to five years.

DigitalGlobe won about $3.55 billion worth of orders and raised the lower end of its 2010 forecast, while GeoEye’s contract is worth about $3.8 billion.

“This award reflects the fact that the commercial sector has proven itself an efficient provider of satellite imagery and services,” said Dougherty Markets analyst Jeff Evanson.

“It supports our long-term thesis on these stocks, which revolves around the fact that satellite imagery is becoming increasingly necessary for various government organizations and that there is a growing gap between imagery supply and demand,” said Evanson.

On the call, DigitalGlobe said its imaging capacity will increase by 60 percent by 2015 with the launch of the new satellite and addition of more ground terminals globally.

It will spend about $625 million between 2010 and 2014, including the launch of its next satellite, WorldView-3.

Both companies count the NGA as their biggest customer. They also sell images to location-based applications such as Google GOOG.O Maps and Microsoft's MSFT.O Virtual Earth, and navigation device makers like Garmin GRMN.O and Nokia NOK1V.HE.

The companies, which dominate the U.S. imagery market, compete with international rivals such as France’s Spot Image, Indian Space Research Organization and Netherlands Antilles-based ImageSat International.


The contracts will be effective September 1 and have a 10-year term, including nine one-year options exercisable by the NGA.

DigitalGlobe said it would immediately begin procurement and construction of its next satellite, WorldView-3, which it expects to launch by the end of 2014.

The NGA will have access to about 50 percent of the WorldView constellation for the first four years, and 60 percent with the launch of its new satellite, it said in a regulatory filing.

GeoEye will start work on its GeoEye-2 satellite, toward which the NGA will contribute up to 40 percent of the construction costs. The new satellite is expected to begin delivering imagery in early 2013.

DigitalGlobe shares rose $3.88 at $31.60 Monday on the New York Stock Exchange. They rose as much as 15 percent to a high of $31.91 earlier in the session.

GeoEye shares surged 22 percent to touch a high of $39.14 on Nasdaq.

Some of the upside to the stocks was also due to the size and timing of the EnhancedView contract. The companies had earlier said the contract would be awarded only late this year and impact to results would be felt from the fourth quarter.

Additional reporting by Fareha Khan in Bangalore; Editing by Jarshad Kakkrakandy and Saumyadeb Chakrabarty