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These
Shares Will Absolutely Go Into Orbit After They Launch on May 14th |
[http://www.streetauthority.com/includes/article-top-ao.htm]Published:
May 11, 2009
There's a word you hear all the time when
people talk about their favorite stocks.
"Skyrocket."
Maybe you've used it. I know I have. It's the ideal visual,
a perfect metaphor.
But on Thursday, May 14 -- just a few short days from now --
that word is going to take on special significance. It's
going to be
literally true for one company.
Let me explain.
For the past six months or so, the market for new stock
offerings -- known on the Street as "IPOs" -- has been all
but nonexistent. In the first quarter 2008, there were 12.
This year there were only two.
That makes some sense, of course. The whole purpose of going
public is to raise money -- as much as possible -- and no
company wants to give its equity away in a lousy market.
It's better to wait until conditions are a little more
favorable.
Now, there are some signs that's happening. The economy
could well be in the nascent stages of a recovery. The
market has staged an impressive rally since early March,
rising +35% off its lows. But neither of those two factors
had anything to do with why one company decided late last
month that it was time to pull the trigger on an IPO and go
public.
It's not because the IPO market is great. It's not. In fact,
the conditions for an initial public offering are somewhere
between "daunting" and "less-than-ideal." But this company
is basically being forced to sell its shares.
How can a company be forced into selling its shares? There's
really only one way: A strong government action.
In early April, the U.S. intelligence director decided to
increase the number of satellite images the government buys.
You'd think this was all handled by the military, but in
fact there are two private vendors that operate what amount
to private spy satellites.
These two companies, which
are critical to national security, are already stretched
thin. There's
already
more business than they can
accommodate. So when these companies learned that the feds
needed even more images, one of the companies decided
its only option, even despite |
Founded in 1992, this company was the the first ever to
receive a high resolution commercial remote sensing
license from the U.S. government. |
market conditions, was to go public. It will use the proceeds from the IPO to build its capacity and fill Uncle Sam's orders. The deadline for launch, so to speak, is Thursday, May 14.
Oh, I nearly forgot: The other company? It's already
publicly traded:
GeoEye (Nasdaq: GEOY). Its shares
are up more than +42% this year. That bodes pretty well for
the company that's getting ready to launch its shares.
Remember, these are the only
two companies the
government uses to provide these crucial images.
The company about to go public had revenues of $275 million
last year -- which was an +81% increase from the year
before. With the government looking to increase the amount
of images it buys and the company able to deploy IPO
proceeds to get more satellites into orbit, shares of the
company are going to -- I'll say it -- take off.
This company is going to skyrocket, in every sense of the
word. All courtesy of its No. 1 customer, the U.S.
government.
Let's look at the business model: The barrier to entry is
extremely high. It costs hundreds of millions of dollars to
design, build and launch satellites. Very few companies have
the financial or technical capability to pull it off. And
even if they did, who are they going to sell images to? The
government already has its suppliers. That is what Warren
Buffett refers to as a "sustainable competitive advantage."
It's a pretty wide moat!
And those two suppliers, incidentally, do extremely well.
The profit margins are quite juicy: This company posted
$92 million in operating earnings on $275 million in '08
revenue. That puts this company in the top 1.5% of all
publicly traded U.S. companies.
On Thursday, this company will sell nearly 15 million shares
at between $16 and $18, about a $250 million deal.
Investors who know the power of government action can't
afford to sit on the sidelines.
Now, it would be foolish
to predict what's going to happen on the first day. I don't
know. But over time these shares are going to far outpace
the overall market.
Here's my prediction: This company's $250 million worth of
stock will be worth $1 billion in less than two years -- it
will double and then double again. I think these shares will
easily reach $50 -- possibly within weeks -- but wild horses
couldn't get me to sell mine for that. These shares will be
a beautiful long-term term play.
Why? Because our government is going to continue to put
pressure on Afghanistan, and there's no way to win the war
there without the best intelligence. That means constantly
updated imagery, which, in turn, means more sales for the
government's two satellite image providers. And there are
certainly other areas that our intelligence leaders need to
keep up with, too: Certainly hot spots like Iran and North
Korea, but also other areas like Israel, Chechnya and
Venezuela, just to name three. In fact, there's really no
place on earth the United States
doesn't have an
interest. No one wants to be surprised. I for one am
glad that the U.S. is keeping its eyes open.
To that end, intelligence officials have already decided to
procure additional imaging. The company about to sell shares
is obviously moving to position itself to take full
advantage of the huge government-driven opportunity. The
potential obviously outweighs the risk of selling shares
into a less-than-ideal market.
Let me be clear: The federal machine is the most powerful
financial force on the planet. Since the bailout began,
Uncle Sam has spent, lent or committed $13 trillion to get
the economy back on track. Every time one of those public
dollars is spent, a private profit is realized. In this
case, a government order is forcing a company to go public.
The least you can do is volunteer to be one of the investors
who reaps a windfall from it.
The name of this company is DigitalGlobe. It will trade
under the ticker DGI.
That's just one of the ways the government can help boost
your portfolio.
Want more?
Just click here.
[http://www.streetauthority.com/includes/editor-profiles-ao.htm]
Disclosure: Andy Obermueller
does not own shares of GEOY.
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