Palantir Technologies Inc.’s stock is “highly volatile and priced at a premium,” according to Argus Research analyst Joseph Bonner.
Yet the company is also “highly differentiated,” one reason why Bonner initiated coverage of its shares with a buy rating and $29 target price late Friday. That target implied 23% upside from Friday’s close, though Palantir’s stock rose 6% in Monday’s session, so the remaining upside is about 16%.
Bonner noted that despite Palantir’s reputation serving defense and intelligence clients, he expects the company’s commercial business to be its major driver going forward. “Like many enterprise software companies we cover, Palantir is reliant upon new AI-powered applications to expand its business,” he wrote.
He also highlighted the company’s 81% rise in adjusted operating profit during the first quarter, while adjusted operating margins saw a nearly 12-percentage-point expansion.
“Management noted that the strong margin expansion reflected the robust unit economics of Palantir’s business,” Bonner said. “We would also note that the company is giving the market what it wants in terms of margin expansion and profitability.”
He also cheered elements of the company’s contract strategy. For instance, Palantir “looks to sign five-year contracts with clients, a rather long contract term, with revenue recognized ratably — yet another nod to
the complexity of its solutions.”
But Palantir can also be flexible, as evidence by a consumption-based contract struck with the U.K. National Health Service late last year, Bonner said.
While Bonner took a positive view of Palantir shares, CFRA analyst Janice Quek was more measured in a weekend note to clients that reiterated a hold stance.
“While [Palantir’s] recent results have demonstrated the positive reception of [the Artificial Intelligence Platform] and suggests its potential to sustain double-digit growth for the company in the near to medium
term, we are cautious of economic risks that have softened software spending across the industry,” Quek wrote.
Further, the company’s forecast for this year “signals some conservatism in its outlook,” she wrote. “The company also saw slower demand outside of the U.S during the quarter, which could persist in the uncertain environment.”
Palantir shares are up 46% so far this year.
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