Like many times over the past year, Wednesday is turning out to be another good day for Palantir (NYSE:PLTR) investors. The shares pushed higher at the open after the big data specialist announced that it has been awarded a new $178 million/two-year U.S. Army contract. The win is for a project called the Tactical Intelligence Targeting Access Node (TITAN), a battlefield system utilizing artificial intelligence.
Palantir will be working alongside Northrop Grumman, Anduril Industries, L3Harris Technologies, Pacific Defense, SNC, Strategic Technology Consulting, and World Wide Technology. The TITAN battlefield system will collect information from both space-based and terrestrial sensors to enhance precision targeting and aid in various aspects of battlefield strategy.
Given that it was the provider of the Army’s distributed common ground system (DCGS) and TITAN is seen as the successor to DCGS, Palantir was a big favorite to get the contract.
As such, William Blair analyst Louie DiPalma was expecting Palantir to win, and the spoils should go toward helping the top-line.
“In our view,” said the analyst, “the TITAN and Maven contracts will cause Palantir’s U.S. government revenue to accelerate from its fourth-quarter 5% rate, which was the lowest mark since Palantir went public.”
That was probably on investors’ minds when sending shares up, but for DiPalma, who has argued for a while that Palantir is simply overvalued, the contract has done little to change his mind.
Palantir’s outlook for 2024 calls for revenue between $2.65 billion to $2.67 billion and that is lower than the forecast of the sell-side analyst consensus back in January 2023 ($2.8 billion) when Palantir shares were trading between $6 to $8, far below the current ~$25.8 share price.
In any case, DiPalma thinks the contract was largely included in the guide. “Even if the full contract value were added, the guidance would still be below what analysts were expecting Palantir to achieve,” he goes on to say. What’s more, the company is not really set up for this sort of work and will need to pay the other partners while the operating margins will likely resemble those of defense prime contracts and are generally much lower than the ones Palantir is used to (~30%).
Accordingly, DiPalma reiterated an Underweight (i.e., Sell) rating without offering a fixed price target. (To watch DiPalma’s track record, click here)
Others on the Street do have a target in mind, and it also shows they believe the shares have soared too high; the $18.55 average target represents downside of ~29% from current levels. Rating wise, based on a mix of 6 Holds, 5 Sells and 2 Buys, the consensus view is that this stock is a Hold. (See Palantir stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
