Should You Buy Palantir Ahead of Q2 Earnings Report?

Palantir Technologies Inc. PLTR will report its second-quarter 2024 results on Aug 5, after the bell.

The Zacks Consensus Estimate for earnings in the to-be-reported stands at 8 cents, indicating 60% growth from the year-ago reported quarter. The consensus estimate for total revenues stands at $652.3 million, indicating 22.3% year-over-year growth. There has been no change in analyst estimates or revisions lately.

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The company has an impressive earnings surprise history. Earnings surpassed the Zacks Consensus Estimate in one of the trailing four quarters and matched thrice with an earnings surprise of 4.2%, on average.

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Lesser Chance of Q2 Earnings Beat

Our proven model doesn't conclusively predict an earnings beat for PLTR this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that's not the case here.

PLTR has an Earnings ESP of 0.00% and a Zacks Rank #3.

All Round Healthy Business Should be the Driver in Q2

We expect a significant year-over-year improvement in the company's top line in the to-be-reported quarter, driven by healthy business from existing as well as new customers, strengthening both Government and Commercial segments.

The consensus estimate for Government revenues is pegged at $347 million, indicating 15.1% year-over-year growth. The consensus mark for Commercial revenues is pegged at $305.7 million, indicating 31.9% year-over-year growth.

Stock Looking Pricey

Palantir shares have surged a whopping 56.6% year to date. This performance has significantly outpaced the 17.3% rise of its industry and the 16% increase of the Zacks S&P 500 composite. Interest in this prominent AI-focused stock remains strong as investors seek opportunities to capitalize on the trend. Similarly, other noteworthy AI stocks have experienced significant gains, reflecting the overall positive sentiment in the market. NVIDIA has risen 140.3% and SoundHound AI SOUN has rallied 140.1% year to date.

Year-to-Date Price Performance

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At this moment, it is worth noting that at its current valuation, Palantir is looking pricey. Based on training 12-month EV-to-EBITDA, PLTR is currently trading at 266.5X, way above the industry's 56.5X. If we look at the forward 12-month Price/Earnings ratio, PLTR shares are currently trading at 72.9X forward earnings, well above the industry's 35.5X.

Investment Considerations

Palantir's AI solutions are crucial for enhancing defense capabilities, evident in its recent $480 million U.S. defense contract for AI system Maven. The company generates 55% of its revenues from government contracts and 45% from commercial ventures. Palantir's expertise in AI-driven information warfare and cybersecurity supports its sustained growth amid evolving global security demands.

Its Gotham platform secures multiyear government contracts, driving double-digit sales growth and predictable cash flow. In first-quarter 2024, government revenues rose 16% year over year, while commercial revenues increased 40%. The company's pivot to corporate clients has been highly successful, bolstered by AI-powered operating systems and boot camps.

Wait for the Right Time to Buy

Palantir's latest guidance suggests a 2.7% sequential increase in revenues for the second quarter of 2024, indicating a potential slowdown in business growth in the latter half of the year. Nevertheless, the company's agility in AI-led information warfare and cybersecurity continues to position it for sustained growth amid evolving global security needs.

However, given the stock's current high valuation based on EV-to-EBITDA and Price/Earnings ratios, it might be prudent for investors to wait for a potential market correction, especially when PLTR does not seem poised for an earnings beat. Palantir remains fundamentally strong, but a better entry point could emerge if the stock undergoes some price adjustment.

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