Palantir Technologies Inc. (NYSE: PLTR) remains one of the top darling stocks of 2024. With A.I. and friendly-government contracts as far as the eye can see, the only thing more mysterious than getting a formal description of its true work and a full client list is how analysts try to keep up with Palantir’s incredible stock.
Palantir shares closed up 23.5% at $51.13 on its November 5 post-earnings reaction. It also traded close to 200 million shares on the day. How can this be justified after nearly a 200% year-to-date gain in 2024?
LOOKING FORWARD VS. NOW
Oggonomics does not issue formal buy/sell/hold recommendations nor does it issue formal price targets for the stock. But guess who does — Wall Street’s analyst community. That analyst community has had a very mixed ratings about Palantir even ahead of earnings. After all, Palantir’s $51 handle and $114 billion market capitalization classify this as a greatly overvalued stock if you just focus on historical metrics. Or does it…
Should growth and high stock performance be counted as strategic or secular — or is it both?
ANYONE CAN SAY IT’S OVERVALUED
Here is how any analyst can say it’s overvalued. Palantir is now valued at over 140-times expected 2024 earnings and at 118-times 2025 expected earnings. And for times-sales valuations, Palantir is valued at 40-times expected 2024 revenues and 35-times expected 2025 revenues. Most analysts would say that’s a stock that is priced for perfection even if it doubles expectations next year.
Just remember an old investor adage — “The market can remain irrational longer than any one investor can remain solvent!”
BUT WHAT ABOUT ITS MASSIVE GROWTH?
Palantir’s total revenue growth was 30% at $726 million, but U.S. revenue growth of 44% at $499 million in Q3-2024 carried the day. Palantir is even addressing this as “unrelenting AI demand that won’t slow down” and as a “U.S.-driven AI revolution that has taken full hold.” It’s like dot-com revolution on steroids because the inputs are so costly. The top growth driver was U.S. commercial growth of $54% to $179 million, followed by U.S. government revenue growth of 40% to $320 million.
While Oggonomics prefers not to recount all of the earnings details (as enough sites already do), this just goes to show why everyone that keeps pounding the table about it being overvalued has a point. That hasn’t prevented massive revenue growth of course, which has led to a massive stock boom (now up almost 200% YTD!). And valuations alone might not end this mega-growth story until there is a big miss. Palantir’s other own words to describe its outperformance against expectations — “We absolutely eviscerated this quarter…”
There is a massive difference here on earnings. Despite a $435 million contribution of adjusted free cash flow in the quarter, and a 60% margin, the GAAP earnings of $0.06 per share is still only $0.10 per share on the non-GAAP basis.
Investors have talked about Palantir’s valuations being high all year. The momentum has proven, at least up to this point, that being smart and rational meant leaving a lot of money on the table.
So, what else is there?
WALL STREET’S “ADJUSTMENTS”
Very few formal downgrades or upgrades were seen from analysts. What was very common were the many price target hikes that were seen. Here are some of the summaries without notes:
- CFRA (Hold) target to $38, but a fair value calculation of $25.62.
- D.A. Davidson (Hold) target to $47 from $40.
- Mizuho (Underperform) target to $37 from $30.
- Morningstar (Sell) raised fair value estimate (on a narrow-moat) to $21 from $19
- Northland (Market Perform) target to $38 from $35.
Any others worth noting?
THE TWO BIG ANALYST CHANGES SEEN
While price target changes are one thing, two key ratings changes were seen out of BofA Securities and Morgan Stanley. These are outlined individually below.
BofA Securities has a Buy rating and raised its $50 price objective to $55. BofA’s team even sees upside to Palantir’s U.S. government growth given its stronger AI initiatives and evolving software procurement. The firm even noted that Palantir’s network of partners was once competitors, but that network is still growing. It sees revenue growing to $4.6 billion in 2026 and it raised 2026 earnings to $0.58 EPS from $0.55 EPS. BofA’s investment rationale says:
We see Palantir as a beneficiary of rapidly growing demand for Artificial Intelligence (AI)-platforms in both commercial and government end-markets. Palantir’s dominant position in the AI-powered software market, differentiated end-to-end, ontology-powered & highly secure solutions and first mover advantages should support revenue growth and improving profits in the midterm. Increased urgency on modernizing military and intel capabilities may provide significant opportunities for Palantir.
Morgan Stanley removed its Underweight and $20 target. The firm said:
Our Underweight thesis was predicated on maturing government growth, lagging commercial traction, and limited FCF revision potential ahead. The trendlines extending into this quarter prove stronger than expected, highlight the company’s AI positioning, and rare Rule of 68 profile. Removing our PT and rating.
WALL STREET’S “OTHER” DILEMMA – INSIDER SALES
Investors love seeing executive buy stock in a company. Sometimes they get antsy when executives move to sell shares. A new 10b5-1 plan shows multiple executives selling shares. That new plan is for up to 11.5 million shares through 2026 in open-market transactions. That’s roughly $585 million at current share prices. Here are the executives listed as selling shares:
- Alexander Karp, Chief Executive Officer;
- Stephen Cohen, President;
- David Glazer, Chief Financial Officer;
- Shyam Sankar, Chief Technology Officer;
- Ryan Taylor, Chief Revenue Officer & Chief Legal Officer;
- and David Stat, Director.
If you were sitting on gains worth tens of millions of dollars, particularly knowing that taxes are a risk ahead, wouldn’t you want to lock in some multi-generational wealth too?
DISCLAIMER
None of the views in this report are intended to be interpreted as investment advice nor do they constitute a recommendation from Oggonomics to buy or sell Palantir’s stock. The views, ratings and formal price targets issued herein were issued by each firm mentioned. Oggonomics is not handicapping, agreeing or disagreeing with their views. There are no assurances at all that any of the upside or downside views expressed by each of these firms will come to fruition.
Oggonomics does not have any formal ratings nor price targets on Palantir and related companies. Any decision to buy, sell, hold, short or avoid this stock is the sole responsibility of each investor individually. Those investment decisions should also be made with a financial advisor.
