DigitalGlobe, Inc.: A Defense Stock Turnaround

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!

Goldman Small Cap Research is not affiliated in any way with Goldman Sachs & Co.

It is important to note that while we may track performance separately, we utilize the same coverage criteria in determining coverage of all stocks in both research formats. Please view the company’s individual disclosures for each engagement, which can be found in each company-specific report. All information contained in this blog, newsletter and in our reports were provided by the Companies or generated from our own due diligence. Our analysts are responsible only to the public, and are paid in advance to eliminate pecuniary interests, retain editorial control, and ensure independence. Analysts are compensated on a per report basis and not on the basis of his/her recommendations. 

The information used and statements of fact made have been obtained from sources considered reliable but we neither guarantee nor represent the completeness or accuracy. Goldman Small Cap Research did not make an independent investigation or inquiry as to the accuracy of any information provided by the Company, or other firms. Goldman Small Cap Research relied solely upon information provided by the Company through its filings, press releases, presentations, and through its own internal due diligence for accuracy and completeness. Such information and the opinions expressed are subject to change without notice. A Goldman Small Cap Research blog, report, note, or newsletter is not intended as an offering, recommendation, or a solicitation of an offer to buy or sell the securities mentioned or discussed.

This blog does not take into account the investment objectives, financial situation, or particular needs of any particular person. This blog does not provide all information material to an investor’s decision about whether or not to make any investment. Any discussion of risks in this presentation is not a disclosure of all risks or a complete discussion of the risks mentioned. Neither Goldman Small Cap Research, nor its parent, is registered as a securities broker-dealer or an investment adviser with FINRA or with any state securities regulatory authority.

ALL INFORMATION IN THIS BLOG, REPORT OR NEWSLETTER IS PROVIDED “AS IS” WITHOUT WARRANTIES, EXPRESSED OR IMPLIED, OR REPRESENTATIONS OF ANY KIND. TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE FOR THE QUALITY, ACCURACY, COMPLETENESS, RELIABILITY OR TIMELINESS OF THIS   INFORMATION, OR FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL, INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES THAT MAY ARISE OUT OF THE USE OF THIS INFORMATION BY YOU OR ANYONE ELSE (INCLUDING, BUT NOT LIMITED TO, LOST PROFITS, LOSS OF OPPORTUNITIES, TRADING LOSSES, AND DAMAGES THAT MAY RESULT FROM ANY INACCURACY OR INCOMPLETENESS OF THIS INFORMATION). TO THE FULLEST EXTENT PERMITTED BY LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE TO YOU OR ANYONE ELSE UNDER ANY TORT, CONTRACT, NEGLIGENCE, STRICT LIABILITY, PRODUCTS LIABILITY, OR OTHER THEORY WITH RESPECT TO THIS PRESENTATION OF INFORMATION.

For more information, visit our Disclaimer: www.goldmanresearch.com