GeoEye Inc.'s shares dropped nearly 23 percent Monday after the satellite imagery provider disclosed that a federal agency will not renew a major contract with the company.

THE SPARK: The U.S. National Geospatial Agency informed GeoEye that due to limited government funding, it will not renew a key service contract for a third year. Instead it proposed restructuring the contract for a three-month agreement, followed by a nine-month option. The federal agency also proposed changing certain cost sharing agreements for one of its satellites.

THE BIG PICTURE: The government has been paying GeoEye $150 million a year under the service contract and agreed to a $184 million step-up once new technology was available. The government is now offering a 3-month contract worth about $40 million, but the nine-month contract, worth roughly $119 million is not guaranteed, according to Raymond James analyst Chris Quilty.

This sudden loss of potential revenue would be a major blow for GeoEye. The company may become a target for acquisitions by competitors, give its uncertain financial future but strong assets, he said in a note to clients.

THE ANALYSIS: Several analysts downgraded their ratings on the company, including Quilty who moved his rating by two notches, to "Underperform" from "Strong Buy." He said the outlook for the company is grim, but could change if there was a change in the budget for one key project or Congress intervenes.

"We believe the odds, however, are not in GeoEye's favor," he wrote.

SHARE ACTION: Shares of the company closed down $4.18, or 22.8 percent, at $14.16, after dropping as low as $12.87 during the session. That was the lowest point the stock traded at since 2005. Shares were trading as high as $44.21 at the end of March.