Within the Russell 1000, only 10 stocks are rated at the equivalent of “sell” by at least 50% of analysts, and now Palantir Technologies Inc. is one of them.
Morgan Stanley analyst Keith Weiss cut his rating on Palantir shares
to underweight from equal-weight Thursday, writing that while Palantir’s valuation bakes in “AI euphoria,” it will take time for the company to translate its artificial-intelligence offerings into serious revenue.
“[W]hile bringing product to market was enough to inspire investor optimism in the past 6 months, we see the focus shifting to investors parsing out the companies that can drive revenue from these offerings in the most timely and effective ways,” he wrote. “To that end, Palantir still appears very early as the company has clearly communicated that it has yet to determine a monetization strategy for its solution.”
Palantir shares now trade at 14.6 times enterprise value to estimated forward sales, compared with 5.1 times at the end of last year, according to Weiss. That current valuation is “overly reflective of Palantir’s AI promise,” while the company’s fundamentals are “mismatched,” he said.
Weiss sees a tough setup into the second half of the year “as revenue guidance already implies an acceleration in estimated organic revenue growth (ex-strategic investments and Japan [joint-venture] contribution), which sets a higher bar for the positive estimate revision necessary to justify valuation.”
Palantir shares were sliding more than 8% in Thursday morning trading and changing hands south of $15. Weiss lifted his price target to $9 from $8 in conjunction with his 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’s stock, three have buy ratings, six have hold ratings, and nine have sell ratings, according to FactSet data.
Going back to 2018, Palantir has a 33.8% compound annual growth rate on sales, according to FactSet. Palantir ranks 20th among the 64 companies in the Russell 1000
for which that data set is available. Its estimated sales CAGR from calendar 2023 to 2025 is 18.8%, which clocks in 26th among the 76 companies for which there are such estimates.
The company isn’t yet a member of the S&P 500
but it’s targeting inclusion. Getting there would require GAAP earnings on a trailing 12-month basis and GAAP profitability in the most recent quarter. The company has logged a small GAAP profit in each of the past three quarters.
Palantir shares are up 133% so far this year.
Philip van Doorn contributed.