DigitalGlobe (DGI, Financial), a provider of satellite-based earth imagery and services, was down significantly this year. While over 80% of the firm’s revenues relate to what we believe are solid government customers, cash flow guidance came down 4–6% for the full year on lowered expectations in DigitalGlobe’s commercial oriented business. On top of this, DigitalGlobe’s trading multiple contracted as a result of the commercial business disappointment and concern about potential competitors that will have satellites in space over the next few years. Our due diligence indicates that DigitalGlobe has superior technology and that its products are critical to the workflow of their government customers. Shares now trade at cash flow multiples substantially below those of other defense oriented companies, and we believe DigitalGlobe’s valuation is compelling. Nevertheless, we have reduced our position as it might take a significant amount of time before we get clarity on the renewal of DigitalGlobe’s key government contract due to expire in 2020.
From Baron Discover Fund's fourth quarter 2015 commentary.
