DigitalGlobe, Inc.: A Defense Stock Turnaround

Written by GSCR Staff   
Tuesday, 17 November 2015 11:46

In Monday’s Goldman Guide we opined about the defense sector.  The Paris terrorist attacks unfortunately highlight the scary world we all share.  We feel that governments all over the world will look to enhance counter terrorism efforts with increased spending.  Companies with unique products or services should benefit here.

DigitalGlobe, Inc. (NYSE – DGI - $16.54) appears to be a solid candidate at a bargain basement price.  The chart below illustrates the performance over the last year.  The stock is down over 50% since June.

 


DGI 1-Year Chart

(Source: www.otcmarkets.com)

DigitalGlobe is a leading provider of commercial high-resolution earth observation and advanced geospatial solutions that help decision makers better understand our changing planet in order to save lives, resources and time.  The Company’s principal customers include U.S. and foreign governments, defense and intelligence, location-based services, energy, and other industry verticals.  The Company continues to develop new products and services that include collaborative projects with other firms.  Last month PrecisionHawk, along with Verizon (NYSE - VZ), Harris (NYSE - HRS) and DigitalGlobe Iannounced the successful completion of initial testing of high-performance airspace services for both consumer and enterprise drones. The companies have combined their own technologies, such as Verizon’s LTE network, Harris’ ADS-B network and DigitalGlobe’s Geospatial Big Data Platform to figure out how to safely integrated drones into the skies.

One big metric that stands out to us related to DGI is an Enterprise Value/EBITDA figure of 6.  Anything below 10  is solid.  There is a distinct possibility that there could be significant M&A activity in the defense sector in 2016 and this valuation could make DGI an attractive candidate.  Secondly, gross margins of 79% versus the industry average of 27% indicate that its customers are willing to pay a premium for DigitalGlobe’s products and the Company has some wiggle room related to price points.  Finally, the Company has met or exceeded EPS estimates four straight quarters and revenue expectations in three straight quarters. 

DGI should be a solid play as the defense sector regains some traction.  We think the stock gets back to the $20 level in Q1 2016.

Have a great day!

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