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Palantir Won Government Contract, But This Analyst Isn’t Happy

Palantir (PLTR) is a polarizing name on Wall Street, eliciting a wide array of views from the analyst community. Its latest contract win has done little to convince William Blair's Kamil Mielczarek, that a reassessment is in order.

The big data specialist was recently awarded a $90 million 5-year contract for the Department of Energy's Safety Analytics, Forecasting & Evaluation Reporting (SAFER) program. Palantir’s platform will integrate data and enable the National Nuclear Security Administration (NNSA) to assess the organization’s safety programs’ health.

Additionally, Mielczarek anticipates the Department of Defense to shortly announce that Palantir “renewed and potentially upsized” its $300 million contract for the Special Operations Command (SOC) All Source Information Fusion (ASIF) program.

Either way, the announcements might instigate a rally but won’t alter the stock’s long-term prospects, says the analyst.

“While this SAFER contract award and the likely ASIF renewal are positive and will likely lead to short-term upside, we expect the downward trend to resume over the longer term on a confluence of factors,” Mielczarek said. “In our view, Palantir needs to significantly improve its commercial/enterprise performance and win more of these types of government contracts to justify its 34 times sales multiple.”

The Department of Energy win could potentially add $18 million in incremental revenue per year, but Mielczarek says that, otherwise, the investment firm’s Dotted Line tracker shows that Palantir “had a fairly quiet first quarter for government bookings."

Besides an early January $8.5 million Army TITAN prototype award, there were no other government contract wins in the quarter.

What’s more, while the program’s potential value might be around the $250 million mark, Raytheon and Northrop Grumman are developing prototypes for the Defense Innovations Unit program, as well.

Palantir is also lagging its data analytics peers in its attempts to further build out the commercial division. Mielczarek says the company has so far failed to achieve the sort of hypergrowth that will justify the lofty multiples.

“Palantir's commercial sales increased by 4% in the December quarter,” Mielczarek noted. “The news sales strategy is showing potential, but we believe that it is too early to bet on.”

Accordingly, Mielczarek reiterated an Underperform (i.e. Sell) rating on PLTR shares, without suggesting a price target.

Looking at the consensus breakdown, the majority of analysts agree with Mielczarek. The stock has a Moderate Sell consensus rating, based on 4 Sells, 2 Buys and 1 Hold. However, in contrast, the Palantir bulls see plenty of upside, and the $25.83 average price target suggests gains of ~12% over the next 12 months. (See PLTR stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.