Alex Karp, CEO of Palantir Technologies.
Andreas Rentz/Getty Images
Palantir Technologies is getting a little pushback from the Street on its announcement yesterday relating to the U.S. Army’s work to modernize the way it handles data and analytics.
Here’s the situation: In February 2020, the Army announced that Palantir (PLTR) and BAE Systems (BAESY) had been named as competitors for an $823 million, seven-year program to upgrade and replace components of the Army’s “Distributed Common Ground System.” Six companies had originally submitted proposals for the program.
Palantir now says that it has been selected to provide “the data fabric and analytics foundation” for the program.
In June 2020, BAE had announced that it had received an initial order under the program, sometimes referred to as Capability Drop 2, but Palantir apparently won the bake-off between the two companies, and will be the sole provider going forward. The implication is that BAE received some of the contract funds already, but Palantir believes it will get the rest. BAE did not immediately respond to a request for comment.
Palantir said its software will be used “to support Army Intelligence users worldwide with a globally federated intelligence data fabric and analytics platform spanning multiple security classifications.”
Palantir is always a controversial stock, and this announcement underlines the point. Two analysts with bearish stances on the stock issued notes on Wednesday raising questions about the project specifically, and the strength of Palantir’s defense business more generally.
Citi analyst Tyler Radke notes that the contract is structured as an “indefinite delivery, indefinite quantity” contract, which he says are “notoriously hard to quantify,” and asserts that the total deal value likely also includes hardware, sensor, and peripherals purchases that would go to other vendors. He also thinks the contract is likely already reflected in guidance.
Meanwhile, Radke writes that his tracking of Palantir’s federal contracts suggests “very light signing activity” in the September quarter. Radke writes that he would sell the stock on the Army contract news, “as we don’t expect the contract to significantly influence forward estimates.” Radke keeps his Sell rating and $18 target price on the stock.
Likewise, William Blair analyst Kamil Mielczarek repeated his Underperform rating on Palantir shares, and asserts that a 10%-plus move in the stock in after-hours trading on Tuesday was an overreaction. For one thing, he notes that the White House budget requested only $92.6 million for the program for the government’s 2022 fiscal year, down from $198 million in fiscal 2021, with only about $22 million designated for software.
Meanwhile, like Radke, Mielczarek thinks Palantir’s government business was light in the third quarter. “While Palantir won several extensions, we did not pick up any contracts for new work,” he writes.
Palantir stock is up 4.7%, to 24.30.
Write to Eric J. Savitz at [email protected]
