Shares of GeoEye Inc. lost nearly a quarter of their value after a U.S. government agency warned it could cut funding to the satellite imagery provider, potentially cutting off a major source of revenue and making the company a takeover target for bigger rival DigitalGlobe Inc .
The National Geospatial Intelligence Agency on Friday said it will not renew the EnhancedView contract with GeoEye for the full year.
GeoEye, with operations in Thornton and Longmont-based DigitalGlobe won a combined $7.3 billion contract in 2010 to supply images to U.S. spy and military agencies. The EnhancedView program accounted for 41 percent – about $150 million – of GeoEye’s revenue in 2011.
The companies revealed earlier this year that they had attempted to merge to be in a better position to deal with defense budget cuts, but when talks fell through GeoEye tried to buy DigitalGlobe.
“The contract loss raises the real possibility that GeoEye could become a minority partner on the program,” said Chris Quilty, a Raymond James analyst, downgrading the stock to “underperform” from “strong buy.”
Quilty said the outlook for GeoEye appeared grim but the company could emerge as a whole if the EnhancedView budget is fully funded and Congress intervenes to level the playing field between DigitalGlobe and GeoEye.
“We believe the odds, however, are not in GeoEye’s favor.”
DigitalGlobe last week said NGA plans to renew its contract for the third full year, without any cuts.
GeoEye’s shares fell 22 percent or $4.10 to close at $14.24 Monday.
