For a stock down by around 50% over the past six months, investors would no doubt like to hear that from its current standing, the upside is “compelling.”
Fortunately for those backing Palantir (PLTR), that is exactly what Piper Sandler’s Weston Twigg thinks about the big data specialist.
Twigg’s confident outlook for the company is based on a recent analysis of Palantir’s U.S. government contracts; what he found helps to solidify the bull-case.
“We noted broadening traction among government agencies, beyond Defense and into agencies like the Department of Veterans Affairs and Department of Energy,” said the 5-star analyst. “We expect this to drive 10-20%+ annual USG growth for the next few years.”
Spanning across agencies including the Army, Navy, Air Force, and U.S. Special Operations Command, the Department of Defense (DoD) still represents the biggest revenue generator, with Twigg estimating the segment accounts for between 50%-77% of Palantir's U.S. government revenue.
Given the DOD's requested discretionary budgets are anticipated to rise by 5% in FY2022 and by 4% in FY2023, Twigg thinks the “high DOD exposure could be a positive” for the business. What’s more, Russia’s invasion of Ukraine could act as a “catalyst” for the DOD to upgrade its technologies and be ready for any “future potential conflicts.”
But as noted above, Palantir has gained a foothold in other departments too.
For example, in 2020, the company’s U.S. government revenue rose by 91% year-over-year to $474 million from $248 million. However, at the same time, revenue generated from the Department of Health and Human Services (HHS) increased by 892%, from ~$6.4 million in 2019 to ~$56.9 million, with the segment accounting for 12% of 2020 USG revenue compared to 3% in 2019. As such, Health and Human Services takes second place in the revenue generating ranks, with the Department of Homeland Security, Treasury, Veterans Affairs, Department of Energy, and Department of Justice following behind.
So, promising for Palantir’s USG business, but what are the implications for investors? Twigg’s rating stays an Overweight (i.e. Buy), yet the price target is nudged higher – from $15 to $16. Should the analyst’s thesis go according to plan, investors will be sitting on one-year returns of 32%. (To watch Twigg’s track record, click here)
Twigg is one of the Street’s PLTR bulls, but most remain skeptics; the stock’s Hold consensus rating is based on 5 Holds, 3 Buys and 1 Sell. However, going by the $15.06 average price target, the stock is anticipated to climb 24% higher over the coming year. (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.