Why DigitalGlobe Shares Popped
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of DigitalGlobe (NYS: DGI) , a supplier of satellite imagery to the U.S. Defense Department, shot 12% higher after the company reported better-than-expected first-quarter results.
So what: Apparently the fears of a pullback in government spending were overdone, because DigitalGlobe reported a 12% boost in revenue to $87 million, aided mostly by its defense segment, and reversed a year-ago loss to report a profit of $0.08. Wall Street had only been looking for DigitalGlobe to earn $0.01 on revenue of $83.7 million. In addition, the company announced that it expects revenue growth of 14% for the remainder of the year, which implies full-year revenue of $387 million - well ahead of the Street's expectation of $372.3 million.
Now what: Today's earnings report may help end what has been a precipitous decline for DigitalGlobe's stock, but it does little to dispel fears that lawmakers have yet to find a way to cut an additional $1.5 trillion out of the federal budget and, if no resolution is met, in January, automatic cuts of $500 billion will trigger in the defense sector. We've already seen weak earnings from L-3 Communications (NYS: LLL) , so it's probably just a matter of time before DigitalGlobe feels the pain of weaker spending. I'm erring toward calling the company a nice value here, but the looming budget cuts just won't allow me to go that far.
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At the time this article was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of L-3 Communications. Motley Fool newsletter services have recommended buying shares of L-3 Communications. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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