'No Mas': Chardan Downgrades DigitalGlobe

Chardan Capital's James McIlree downgraded the rating on

to Neutral. "For many quarters the company has struggled to grow revenues in US Value added services, which declined from $118 million in 2014 to $95.4 million in 2015. We think it will fall again in 2016," McIlree explained. Although DAP revenues increased to $121 million in 2015, DigitalGlobal attributed the above normal revenues in Q2 and Q4 to geo-political events and management has been unwilling to comment on whether the trend would repeat in 2016. According to the Chardan Capital report, "The biggest disappointment has been commercial revenues which fell from $154 million in 2013 to $148 million in 2014, $134 million in 2015 and we estimate will fall to $132 million this year." Given the increasing competition in the commercial market from the low-end segment and DigitalGlobal's pricing, the company has been unable to penetrate the higher volume market segments. In addition, expenses are expected to rise during 2016, driven by new contracts, bonuses and launch related costs in Q4. On the other hand, cash generation continues to be robust and redeployed for share buybacks. Also, while the valuation is favorable at present, "with negative trends in the company's growth areas still in place, we think it will be difficult for the multiple to expand," McIlree added. The 2016 revenue and EBITDA estimates have been lowered from $704 million to $686 million and from $363 million to $336 million, respectively.