Thursday, March 27, 2008

Relevant Comps for GeoEye (GEOY)

It's been a week since I launched my newest public activist campaign, this one aimed at geo-spatial satellite imagery company GeoEye (GEOY).

In general, the response on this blog, to article, and in discussions I've had with others has been extremely positive about GeoEye.

Some very smart and significant shareholders have exited their positions in the company in the last 6 - 12 months. A cause for concern about GeoEye now? No. Simply smart money exiting their very profitable positions in a company they've seen grow significantly over the last couple of years - not a reflection on where the company is now and the opportunities which lie ahead for it. One person commented to me on what a good company it still is.

The most common response to the campaign is how cheap the company is given what it's doing. Its forward P/E ratio for this CY is 12.99, it has $13/share in cash, and its Enterprise Value/EBITDA ratio is at 5.2. With a signficantly enhanced satellite (GeoEye-1) launching by August, the company will have a major driver of growth in the coming years.

Some didn't like the industry comps I previously provided to justify how cheap GeoEye was, especially Trimble Navigation (TRMB) because it is a positioning/navigation company, not a satellite company. Part of the problem in finding a relevant comparison for GeoEye is that its primary competitor, DigitalGlobe, is private.

However, 12.99x this year's earnings is cheap, when compared to an S&P500 average of 19.6x for this year.

And here's another way to figure out where GeoEye should be valued. What companies does GeoEye's board look at when setting executive compensation? Well, according to last year's proxy, they are:

1. Cubic Corporation
2. Input/Output, Inc. - now private
3. Measurement Specialties, Inc.
4. MTS Systems Corporation
5. Nanometrics Incorporated - now private
6. OYO Geospace Corporation

and - lo and behold

7. Trimble Navigation Limited

It turns out those companies have a trailing P/E average of 19.54 vs. 12 for GeoEye. If GeoEye attained that valuation, its price would rise to $45 from $27.

It should get there sooner than the August launch date of GeoEye-1, and rocket past that afterwards.

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