Palantir stock fell after its rating was downgraded, with half of Wall Street analysts now forecast bearish
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Posted: Aug 31, 2023 at 11:58 a.m. ET
Within the Russell 1000, only 10 stocks are rated equivalent to “sell” by at least 50% of analysts, and now Palantir Technologies Inc. one of them.
Morgan Stanley analyst Keith Weiss downgraded Palantir PLTR shares to less than equal weight on Thursday, writing that while Palantir’s valuation is baking in “AI euphoria,” it will take time for the company to translate its AI offerings into significant revenue.
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Within the Russell 1000, only 10 stocks are rated equivalent to “sell” by at least 50% of analysts, and now Palantir Technologies Inc. one of them.
Morgan Stanley analyst Keith Weiss downgraded Palantir shares
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He fell under equal weight on Thursday, writing that while Palantir’s valuation is tinged with “AI euphoria”, it will take time for the company to translate its AI offering into significant revenue.
See moreAnalysts say Palantir’s AI story will require patience
“Although bringing the product to market was enough to inspire investor optimism in the past six months, we see the focus shifting to investors analyzing companies that can increase revenue from these offerings in the most timely and effective way,” he wrote. . “To this end, Palantir still appears very early on as the company has made it very clear that it has not yet defined its solution monetization strategy.”
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Palantir shares now trade at 14.6 times the enterprise value of estimated forward sales, compared to 5.1 times at the end of last year, according to Vice. He said this current valuation “overly reflects Palantir’s AI promise,” while the company’s fundamentals “mismatch”.
Weiss sees a difficult setup in the second half of the year “since revenue guidance already implies an acceleration in estimated organic revenue growth (ex-strategic investment and Japan contribution (joint venture))), which establishes a higher bar for positive ratings revision necessary to justify the rating.”
Shares of Palantir were down more than 8% in morning trade Thursday and traded south of $15. Vice raised its price target to $9 from $8 in conjunction with the downgrade.
The average price target listed on FactSet is $13.73, about 8% below current levels. Of the 18 analysts tracked by the service who cover Palantir stock, three have buy ratings, six have hold ratings, and nine have sell ratings, according to FactSet data.
Back in 2018, Palantir posted a 33.8% compound annual growth rate in sales, according to FactSet. Palantir ranks 20th out of the 64 companies in the Russell 1000 RUI for which this data set is available. The compound annual growth rate for its estimated sales from the calendar 2023 to 2025 is 18.8%, and it ranks 26th out of 76 companies for which there are such estimates.
The company is not yet a member of the S&P 500
SPX, but it targets embedding. Getting there requires GAAP earnings on a 12-month basis and GAAP earnings last quarter. The company has reported small GAAP earnings in each of the past three quarters.
Palantir shares are up 133% so far this year.
Philip Van Dorn contributed.
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