New Contracts Don’t Alter the Bear Case, Says Analyst

On February 23, Palantir (PLTR) retweeted a piece by defense media outlet Defense Daily that recounted how the Army’s Intelligence Systems and Analytics office granted Palantir a $34 million task order for CD-2 (Capability Drop 2) earlier in the month.

Recall, in October, the U.S. Army’s Program Manager for Intelligence Systems and Analytics had chosen the company to deliver the Army’s Intelligence data fabric and analytics foundation for the Capability Drop 2 program.

In tandem with services for installation, user training, testing, and cybersecurity, the task order included taking on Gotham software licenses.

“The article did not discuss the period of performance for the contract,” notes William Blair’s Kamil Mielczarek, “which is pertinent since Palantir in the past has won contracts with an initial three-month duration.”

So, Mielczarek got in touch with the CD-2 program’s manager – the Army’s Program Executive Office of Intelligence, Electronic Warfare, and Sensors (PEO IEW&S). He was told the “period of performance” lasts until February 15, 2023. As such, this contract is worth a lot less than the $115 million annual run-rate for Vantage, Palantir’s large Army data analytics program – a contract which is worth $460 million over four years.

“While the CD-2 contract’s $34 million annual contract value run-rate relative to the higher Vantage annual run-rate may be disappointing to some investors given the size of the $823 million IDIQ (indefinite delivery, indefinite quantity),” the analyst said. “The fact that a significant CD-2 task order finally commenced is a positive.”

Palantir has had a hard time “winning” new government contracts, but things seem to be improving.

Last month, the company disclosed the CDC had awarded it a new $12 million annual run-rate contract, further expanding on its relationship. And that comes off the back of a new $14 million annual run-rate contract with the Space Force.

Mielczarek, though, has been a prominent Palantir bear for a while and these developments are not enough to persuade the analyst to change tack. “While Palantir has achieved tremendous success with its data analytics platform across defense and federal civilian customers,” the analyst wrapped up, “We expect protracted sales cycles and competition will prevent the government division from growing 30% over the long term.”

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To this end, Mielczarek rates Palantir shares an Underperform (i.e. Sell), without suggesting a price target. (To watch Mielczarek’s track record, click here)

Sentiment is similar amongst Mielczarek’s colleagues; the stock has a Moderate Sell consensus rating, based on 4 Sells, 3 Holds and 1 Buy. That said, going by the $13.17 average price target, shares are anticipated to see 20% growth in the year ahead. It will be interesting to see whether the analysts lower their price targets or upgrade their ratings over the coming months. (See Palantir stock forecast 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.