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William Blair reiterated its Underperform rating on Palantir Technologies (NYSE:PLTR) following several announcements last week.
On March 21, Space Systems Command, Los Angeles Air Force Base, announced that it awarded Palantir a three-month bridge extension, instead of a long-term renewal, on its Space Force data software services contract, which is the company’s third-largest contract.
On March 24, it also announced that it selected 17 other vendors along with Palantir for a five-year, $900 million data analytics contract that builds upon the sole-sourced Palantir program.
According to William Blair, there is a risk that Palantir’s growth for the program will be limited as the Space Force splits the pie among the numerous vendors. “Over the long term, there is the potential for the same type of migration off of the Palantir platform that took place with the Raven program (Quoth The RAVEn…), and is taking place for the FDA’s CDER program,” said the firm.
According to William Blair, there is a risk that Palantir’s premium 8.5-times sales multiple will compress as competition pressures revenue growth and profitability.
Under a bear case scenario in which churn becomes a pattern, the firm anticipates Palantir’s EV-to-revenue multiple could potentially decline and converge towards the average multiple of established enterprise IT consulting firms, which is approximately 3 times. “A multiple range of 3 times to 5 times revenue implies a stock price between $4 and $5,” added the firm.
