With Palantir (NYSE:PLTR) set to report Q4 earnings next week on February 5, analysts remain largely negative on the stock, even as analysts at Jefferies and RBC Capital Markets reiterated their ‘Underperform’ ratings on the stock and price targets of $13 and $5 respectively. Wall Street expects Palantir’s Q4 EPS to come in at $0.0696 and revenue of $615.65.
RBC Capital Markets analysts cite a muted quarterly government spend tracker (except for NHS) and mixed commercial checks. While estimated government contracted value implies modest growth, mainly on account of the NHS deal, since the deal started only on November 22 and since non-NHS QCV is down mid-teens, RBC is allowing for the possibility for government revenue growth to end up below consensus.
They also expect no change in the Commercial business since the AIP launch.
“Despite the new boot camp strategy, the number one challenge cited by customers is maintaining in-house skills and competency centers, ultimately, leading to an over-reliance on Palantir's professional services, which are viewed as expensive,” analysts at RBC Capital Markets wrote in a note to clients Tuesday.
“We would also highlight ongoing push-back on the lack of pricing transparency and competitive differentiation with AIP. One interesting data point was Palantir seems to be vying to compete in deals outside its core competency (e.g., offering to build custom apps for resource scheduling typically served by HCM software),” they added.
RBC analysts also point to the fact that shares are trading at a significant premium to peers.
Jefferies on the other hand notes that the current valuation screens attractive relative to high-growth peers when taking a long-term view. However, they prefer other names for AI exposure, especially as the stock price already “embeds expectations for upside from AIP.”
Jefferies expects commercial revenue growth in Q4 to drive overall revenue upside.
“Consensus estimates for 4Q commercial rev stand at $271M (or 26% y/y growth). On a y/y growth basis, consensus estimates imply a 300bps acceleration on a 600bps easier comp. On a q/q growth basis, estimates imply 8.2% sequential growth which would be the largest increase in over 8 quarters,” analysts at Jefferies wrote in a client note on Wednesday.
“We believe that the setup is demanding given the lack of visibility into AIP contributions to the commercial business and a GTM motion that is still early and has yet to be proven out,” they added.
While they expect government revenue growth, their expectations are more tempered given limited visibility on when deals will land.
“We believe expectations are reasonable and note that given the lumpiness in government contracts and associated rev recognition, any given quarter could see upside,” said Jefferies analysts.
Palantir stock is trading down 1.85% at $16.43 on Wednesday.