DigitalGlobe, Inc. (DGI, Financial) operates a fleet of high orbit satellites that sell high resolution unclassified earth images to government and commercial clients. In early 2013, DGI completed the acquisition of its direct competitor (GeoEye) to create a dominant position in its niche. We believe there are enormous cost savings from combining two like companies and future capital requirements will be greatly reduced as well, since the company owns extra spare capacity that will be needed for growth and replacement.
An important element of our excitement is the new management team that joined DGI a year ago and is overseeing the company. The CEO is a former senior executive at a very well-respected database company (owned by the Baron Funds) and we believe he will transition the business from being primarily a provider of one-off services for governments to selling unique subscription services to government and commercial ventures. We believe that the company will be able to organically grow its revenues by a third and double its cash flow. Applying a higher trading multiple, halfway between satellite info services businesses, we can see a stock price target twice where we purchased our position. The stock was already a winner prior to our purchase, but better late than never.
From Baron Funds’ first quarter 2013 commentary.
An important element of our excitement is the new management team that joined DGI a year ago and is overseeing the company. The CEO is a former senior executive at a very well-respected database company (owned by the Baron Funds) and we believe he will transition the business from being primarily a provider of one-off services for governments to selling unique subscription services to government and commercial ventures. We believe that the company will be able to organically grow its revenues by a third and double its cash flow. Applying a higher trading multiple, halfway between satellite info services businesses, we can see a stock price target twice where we purchased our position. The stock was already a winner prior to our purchase, but better late than never.
From Baron Funds’ first quarter 2013 commentary.
