Investors rightly take notice when there are changes in a company’s senior management. Such changes can be good, maintaining continuity in a company heading the right direction or reinvigorating one that is stale.
Every situation is different, and it helps to already be following a company closely to be able to gauge whether changes are cause for celebration or concern or merely a non-event.
One company that I have followed closely — and currently recommended in my GameChangers advisor service — recently announced a change in top management. I’ll give you my take on what it means in just a moment, but first, let me tell you a little bit about the company and what it does.
DigitalGlobe Inc (NYSE:DGI)
DigitalGlobe Inc (NYSE:DGI) provides high-resolution products and services tied to satellite imaging of the Earth. (If you like aerial photographs of the Earth, check out the Image Gallery on the DigitalGlobe website).
DigitalGlobe owns a network of half-a-dozen satellites orbiting the globe at this very moment in what is known as a constellation, helping the government and commercial customers monitor what is happening on the ground. DigitalGlobe’s satellites look at everything from everyday street scenes to mapping new terrain to monitoring natural disasters and military movements all across the world.
This kind of visual intelligence is vital to a variety of industries including homeland and national security, oil and gas exploration and even agricultural and weather tracking. In other words, DGI’s value lies in geospatial intelligence, mapping the natural and physical features of any given location at any given time.
In fact, DigitalGlobe’s imaging library now encompasses billions of square kilometers of images of our planet, updated daily and delivered to clients. And of course, DigitalGlobe’s images all in the highest resolution.
I like that DGI is now able to do more than just collect images and data, thanks to its acquisition of GeoEye in 2013. Now DigitalGlobe can also analyze that data by segmenting it and organizing it through mapping and organization. This can help DGI move toward more commercial business and diversify its customer base.
After falling to a new 52-week low in December following its third-quarter earnings call, DGI stock rallied more than 30% in to the end of the year, hitting $31.79 on Dec. 31. In the volatile start to 2015, DGI has pulled back under $28.
Part of the recent weakness has been from concerns over the world’s financial system, as DGI still needs to tap financial markets in order to complete the funding of its next-generation WorldView-4 satellite system. Any incident that appears to destabilize the system — like the decision by the Swiss Central Bank to eliminate its peg to the euro — could spook investors.
However, I still believe the Street will react favorably as results from WorldView-3 are released later this year and DigitalGlobe continues to grow its operating income. WorldView-3 was just launched last August and is considered the most powerful commercial Earth-imaging satellite.
WorldView-3 results will be the key for DGI this year, as they will play a significant role in the currently expected 14.4% revenue growth in 2015 to $744.5 million. While these estimates could prove to be a bit high as DGI recently extended the expected life of the satellite (which would cause revenues recognized under service agreements to be stretched out over a longer period of time), a change in this accounting estimate should not impact cash flow.
DGI’s Management Change Is Not a Cause for Concern
Now, about that management change I mentioned earlier. In the middle of January, DGI announced that Gary W. Ferrera would take over as executive vice president and Chief Financial Officer (CFO) of DigitalGlobe. This is a case where I do not believe there is a lot to read into the situation. DGI’s previous CFO, Yancey Spruill, held the position for 10 years before it was announced last May that he would step down. Yancey Spruill stayed on another three months before leaving to become CFO of a software company, and DGI appointed an interim CFO.
Mr. Ferrera became the permanent replacement two weeks ago, and I like that he has plenty of experience as a CFO, having held the position at several resort companies. He also has a background in investment banking and military intelligence. And considering the government is one of DGI’s largest customers, Mr. Ferrera looks like a solid choice for the job.
DGI may remain volatile in the current environment, but I remain confident that DigitalGlobe will continue to grow in the long-term. The volatility could produce some good buying opportunities, especially if you can get in under $27.
In addition to growth from its sophisticated satellites, DigitalGlobe has authorized a $205 million share buyback program, which should help support DGI stock.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10 and High Octane Trader.
