In a positive step towards the full commissioning and check-out of GeoEye’s latest satellite GeoEye-1, GeoEye, Inc. (NASDAQ: GEOY), announced that GeoEye-1 has taken its first images from space, and is one step closer to providing useful imagery to its customers.

Now while this doesn’t give us as investors the 100% green light, it is one more necessary and important step in ensuring the GeoEye-1 is fully operational and is able to fulfill the promise of the four years it took to develop, build and launch the satellite.

So with the apparent check-out inevitable, is now a good time to pick up shares of GeoEye?

New to the GeoEye story?

GeoEye provides space-based, and aerial imagery and geospatial information through high-resolution and low-resolution imagery, imagery-derived products, and image processing services to customers worldwide.

This capability benefits a broad array of industries including national defense and intelligence, online mapping, state and local governments, environmental monitoring and land use management, oil and gas, utilities, disaster management, insurance and others.

Want more?

• Read my initial buy recommendation here.
• or listen to my EXCLUSIVE interview with GeoEye’s management team here.

The Eye In the Sky

GeoEye-1 on its way towards fulfilling its full duties

There’s been a lot written about GeoEye-1’s “first image” ever taken, which I’ll show below, but we need to realize that this is just one more step in a lengthy process that can take anywhere from 30-45 days to test all the functionality and systems of GeoEye-1 and ensure that it is working properly.

More importantly for our investment thesis, is that the National Geospatial-Intelligence Agency (NGA), GeoEye’s largest customer accounting  for over 50% of revenue, approve of the imagery.

Without the NGA’s approval that the imagery meets its strict criteria for imagery standards, nothing else really matters.

Here’s the first image that was ever taken from GeoEye-1:

A Few Details

GeoEye-1 launched successfully on September 6th from Vandenberg Air Force Base in California.

Since that time, the satellite has been undergoing calibration and check-out in order to fine tune the imagery that it is collecting, as well as thoroughly test and make sure that all the internal and external systems are functioning properly.

GeoEye-1 simultaneously collects 0.41-meter ground resolution black-and-white imagery in the panchromatic mode and 1.65-meter color (multispectral).

This first image showing Kutztown University located midway between Reading and Allentown, Pennsylvania was produced by fusing the satellite’s panchromatic and multispectral data to produce a high-quality, true-color half-meter resolution image.

Though the satellite collects imagery at 0.41-meter ground resolution, due to U.S. licensing restrictions, commercial customers like Google (NASDAQ: GOOG), will only get access to imagery that has been processed to half-meter ground resolution.

The Kutztown University image shows the campus, which includes academic buildings, parking lots, roads, athletic fields and the track-and-field facility. The image was collected at 12:00 p.m. EDT on Oct. 7, 2008 while GeoEye-1 was moving north to south in a 423-mile-high (681 km) orbit over the eastern seaboard of the U.S. at a speed of four-and-one-half miles per second.

Brad Peterson, GeoEye’s vice president of operations, said, “This image captures what is in fact the very first location the satellite saw when we opened the camera door and started imaging. We expect the quality of the imagery to be even better as we continue the calibration activity.”

So Now What?

Satellite calibration and check-out will continue; look to add to your position on share weakness, GeoEye-1 final check-out

It looks like the really tricky stuff is nearing a conclusion and that all GeoEye needs to do now is continue to refine the image quality and make sure it is of a high enough quality to be approved by the NGA.

Management is confident that this will transpire, and that GeoEye will begin selling usable imagery to its customers by the end of October, or early November at the latest.

So why don’t I recommend a purchase of GeoEye’s stock now, especially with the stock getting hammered along with the rest of the market over the last week?

Good question.

When I look over my positions in GeoEye, I see that I already own 3/4 of a full position, and my average purchase price is about $19.79, or right around where GeoEye sits as of the market’s close on Friday, October 9th, 2008.

There’s a couple of reasons why I don’t want to add to my position here, even though the price presents a very compelling buying opportunity:

• I already own 3/4 of a full position. When GeoEye crossed the $17.00 threshold, I was tempted to buy more shares and make my position a full one, but
• There was a chance that GeoEye-1 might not check-out or fail in some other meaningful way before all is said and done, and with a 3/4 position stake already in the company, I wanted to wait until we hear the “all clear” and that GeoEye-1 is actually delivering usable imagery to the NGA and GeoEye’s other customers before I think about committing more capital to an already heavy position.

Now,  with all that being said, you’ll notice that GeoEye is still my #1 pick for new money right now, and I still feel that way strongly, it’s just that my money had already been committed to GeoEye and there was no compelling reason to further push my way into the stock.

If, however, GeoEye’s stock continues to slide (it recovered nicely during Friday’s rally), I will not hesitate to further cost average in, especially if GeoEye-1 proves to be fully functional and starts delivering imagery to the NGA and GeoEye’s other customers.

Bottom Line: If you don’t already own shares in GeoEye, now’s the time to get in, at least 1/2 of a position or more.

If you do own shares, but aren’t fully invested, look to scale in some more on any additional weakness.

If you are fully invested as I am, hold on, and look to add to your position on any definitive rationale to back you up such as an extremely depressed stock price and/or final verification from GeoEye that GeoEye-1 is working and fully functional and is delivering usable imagery.

New to the GeoEye story?

• Read my initial buy recommendation here.
• or listen to my EXCLUSIVE interview with GeoEye’s management team here.

*Variables You Should Know About GeoEye, Inc. (NASDAQ: GEOY)
Current Recommendation:	STRONG BUY
The Company:	GeoEye, Inc. provides space-based, and aerial imagery and geospatial information through high-resolution and low-resolution imagery, imagery-derived products, and image processing services to customers worldwide. Its imagery information products enable customers to map, measure, and monitor the earth for intelligence gathering, precision mapping, construction planning, and environmental monitoring applications, among others.
Why Buy Now:	Established Large Player/Customer Base Consistent Revenue Streams High Margin Business Fantastic Growth Potential in an Expanding and Rapidly Developing Market Downside Protection In Recessionary Climate Several Upcoming Positive Catalysts Should Bring Attention to the Sector and Company Fantastic Stock Price Valuation/Entry Point Largely Underfollowed Stock Well Capitalized for the Next 12 Months or More
Market Cap:	$347.36
Revenue (TTM):	$167.34
Cash/Debt:	$221.5/ $247
Current Price:	$19.50
Risk Rating (?):	8 (High)
Position Size (?):	1/2 (5-5-08), 1/4 (6-12-08)
Buy Around Price (?):	$22.00 (5-5-08), $16.50 (6-12-08)

*As of 10-9-08. Except share price, all values in millions.

View original at: PeakStocks.com

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