Palantir Analysts Mixed On Data Company, Debate Market Opportunity, Discounted Valuation

With the IPO quiet period on Palantir Technologies Inc PLTR expiring, sell-side initiations of the stock are underway.

The Palantir Analysts: Morgan Stanley analyst Keith Weiss initiated coverage of Palantir with an Overweight rating and $13 price target.

Credit Suisse analyst Brad Zelnick initiated coverage of Palantir with a Neutral rating and $11 price target.

Goldman Sachs analyst Christopher Merwin initiated coverage with a Neutral rating and $10 price target.

Why Palantir Has Attractive Risk-Reward: Palantir's Gotham and Foundry platforms connect, integrate and organize data hidden within disparate legacy systems to make better decisions, drive better outcomes and build better applications, Morgan Stanley's Weiss said in a Monday initiation note. 

The near-term opportunity is likely limited to the largest government agencies and commercial enterprises globally, giventhe large-scale nature of the company's deployments, the analyst said. Growth has inflected at a $1 billion revenue run rate, as recent court decisions have changed the way pre-packaged software is bought by the federal government in Palantir's favor, he said. 

The introduction of the Apollo continuous delivery platform has reduced the time and number of engineers needed to install, deploy and manage the customer-facing platform, Weiss said.

This has helped margins ramp rapidly over the last year, shifting the company's positioning more toward software from being a consulting/services firm, the analyst said. 

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Despite this unique combination of accelerating revenue growth and quickly expanding margins, Palantir shares are trading at a discount to peers, he said. 

"As such, we see the level of discount to peers implied by current trading as too severe, creating an attractive risk/reward," Weiss said. 

Morgan Stanley sees room for Palantir to sustain top-line momentum, particularly in the government segment.

Success with commercial enterprises could represent upside to estimates, the analyst said. 

"We also see a path to software-like long-term margins of 35%+ as growth slows to ~11%." 

Credit Suisse Wants More Evidence Of Growth: Palantir's technology and differentiation are uniquely defined by their use cases, such as integrating cross agency intelligence data to help uncover and catch terrorists and saving soldiers' lives by identifying areas where IEDs may be planted, Zelnick said in an initiation note.

Palantir has many high value applications across many high value industries in the private sector, the analyst said.

Palantir puts its market opportunity at $119 billion, with top down estimates validating a large and growing market, he said. 

Analytics are a top spending priority, second only to security, Zelnick said.

On the flip side, a lack of disclosures around historical trends as well as KPIs reduces confidence around the sustainability of growth and profitability, the analyst said.

Credit Suisse said it awaits more evidence of the company's ability to diversify its customer base and grow profitability.

Goldman On Why Palantir Will Trade At Discount: Palantir has found its best fit in the U.S. government, offering solutions where none were available before to aid in intelligence, counterterrorism  and military readiness, Merwin said in an initiation note.

Palantir's positioning in the commercial space will be challenged, given the proliferation of cloud-native database and BI tools, the analyst said. 

"We have been encouraged to see contribution margin surge to 53% in FY20E from 21% in FY19, largely due to a reduction in implementation times and operating cost reductions." 

With just about 125 customers presently, lumpy deals and limited visibility into future pipeline conversion, Palantir will likely trade at a discounted multiple relative to comparable growth peers,  according to Goldman. 

PLTR Price Action: Palantir shares were up 2.32% at $9.71 at last check Monday. 

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