There is no doubt Palantir (NYSE:PLTR) has been one of the market’s biggest AI winners. Over the past year, the company’s stock has delivered staggering returns of 190%, buoyed by investor enthusiasm for its role in the AI game. However, recent times have seen the stock slip somewhat with the shares currently sitting 15% below the 52-week peak notched in March.
This shift prompts a reassessment, according to Monness’ Brian White, an analyst ranked in the top 1% of Street stock pros.
“Given the recent dip in the stock, we’re adjusting our rating on Palantir to Neutral from Sell,” White remarked, opting not to set a specific price target at this juncture. (To watch White’s track record, click here)
The 5-star analyst’s reassessment comes ahead of Palantir’s upcoming Q1 results, slated for May 6th. White is confident that the company will at least match his forecast, expecting Q1 revenue to reach $620 million, slightly below the Street’s estimate of $625.3 million, and EPS to hit $0.08, aligning with consensus figures. Despite a slight slowdown from the previous quarter’s 20% growth, White’s projected 18% year-over-year increase mirrors the performance from the same period last year. Palantir’s Q1 guidance sets revenue between $612-616 million and adjusted income from operations in the $196-200 million range.
Diving into the revenue breakdown, White forecasts government sales at $319.5 million and commercial sales at $300.5 million. Recent trends show a contrasting trajectory between the segments, with government sales experiencing a deceleration for five consecutive quarters, although White’s 1Q24 forecast of 11% growth matches that of 4Q23. Conversely, Palantir’s commercial business has witnessed accelerating revenue growth over the past two quarters, although White predicts a slowdown from 32% in 4Q23 to 27% in Q1. The analyst notes, “Palantir continues to ramp up its commercial business and entice organizations with AI; however, this market is susceptible to the vicissitudes of the economy. In government, deals have proven unpredictable with lumpy revenue recognition.”
For Q2, White expects Palantir will guide for revenue of $647.8 million (a 21% y/y increase, below the Street at $653.4 million) and EPS of $0.09 (above the Street at $0.08).
While White has upgraded his rating, he still thinks the stock is pricey, noting that despite the recent drop, it still has the “richest valuation in our enterprise software group, while also claiming the top spot across our entire universe.”
A hot valuation also appears to be a concern for other Street analysts. Based on a mix of 6 Sells, 5 Holds and 2 Buys, the consensus view is that this stock is a Moderate Sell. The shares are expected to drop ~13% from here, considering the average target stands at $19.67. (See Palantir stock forecast)
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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.
