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Breaking Down Palantir’s New Army Contract

In keeping with Palantir’s (PLTR) record of signing on the dotted line with mostly huge organizations, the company’s latest business dealing ticks all the right boxes.  

The U.S. Army has progressed the data specialist to the next stage of a contact to upgrade and replace components of the Army’s Distributed Common Ground System – what is also known as the Army’s Capability Drop 2 (CD-2) program. This is unrelated to the $876 million contract Palantir won from Capability Drop 1. This seven-year program is worth $823 million and according to the terms, the Army’s intelligence data fabric and analytics foundation will be delivered by the company.

As Palantir is “the only company moving on to this seemingly final stage of the contract awarding process,” Wolfe Research’s Alex Zukin views the development as a “positive” which validates the company’s offering.

There were initially 6 companies vying for the contract but in February 2020 the Army announced that Palantir and BAE Systems were the only competitors left to fight it out for the award.

Palantir’s win might seem surprising as an “initial order” had been handed to BAE in June 2020. After inquiring with Palantir’s management on the matter, Zukin says the company believes it can be viewed as “just one step in the overall awarding process.” “Net-net,” says the 5-star analyst, “This is good news for PLTR and not good for BAE regarding Capability Drop – 2.”

However, Zukin does add that while Palantir has been advanced to the next stage, it is still in “a pilot phase,” and no final agreement has yet to be reached on the commercial terms. This means the $823 million the government has earmarked for the project is “not a guarantee of what future revenues might be.” Furthermore, the analyst thinks the incremental backlog benefit “will be small.” “A logical figure would be the potential backlog benefit in the context of the ~$17M worth of CD-1 revs that PLTR has recognized so far,” the analyst summarized.

To this end, Zukin sticks with a Peer Perform (i.e., Hold) rating and $25 price target, suggesting upside of 5% from current levels. (To watch Zukin’s track record, click here)

The rest of the Street clearly thinks Palantir stock is going nowhere at the moment, as the current $24.20 average price target indicates. On the rating front, with 3 Sells, 2 Holds and 1 Buy the stock has a Moderate Sell consensus rating. (See Palantir stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.