Palantir stock extended its slide for a second straight day, as a bearish research note added to pressure on the shares from its latest earnings report.
RBC Capital analyst Rishi Jaluria on Wednesday cut his rating on Palantir shares to Underperform from Sector Perform, with a new price target of $19, down from $25.
Palantir shares, which fell 9.3% on Tuesday, slumped another 5.2% on Wednesday, to $23. The S&P 500 fell 0.4%, and the Dow Jones Industrial Average fell 0.3%.
Palantir (ticker: PLTR) posted third-quarter results that beat Street estimates on revenue and met expectations on profits, and the company raised full year guidance.
But some analysts were disappointed in the slowing growth in the company’s government business. Others viewed the strong results from its commercial business as being boosted by Palantir’s program of investing in small companies that go public through mergers with special purpose acquisition companies and then signing contracts with the same firms.
In a research note, Jaluria cited four reasons for the more bearish stance.
Jaluria said the government sector has been the company’s strongest market, but that the growth rate in the third quarter from the second quarter was cut almost in half. “We believe Palantir got direct benefits from Covid-related spending and those benefits have already faded,” the analyst said.
In addition, he estimated a gain of 22% in Palantir’s commercial business outside of the SPAC-related business, a slowdown from 25% growth in the second quarter.
“We do not believe revenue from SPAC investments is sustainable, especially given the relatively small size of the companies Palantir is investing in,” he said.
While Palantir has reiterated its forecast for 30%-plus annual revenue growth through 2025, Jaluria writes that he finds the target less convincing given the slowdown in both sides of the company’s business. And not least, he finds the stock’s valuation to be full.
“We still believe Palantir has good technology and strong customer government relationships,” Jaluria said, “but given the valuation, would like to see additional proof points of clean, sustainable 30%+ growth before getting more constructive.”
Write to Eric J. Savitz at [email protected]
