Macro tailwinds are often a good way for ailing stocks to get a boost, and unfortunately, war can be a tailwind too. At least that is what RBC’s Rishi Jaluria thinks Russia’s invasion of Ukraine will do for struggling Palantir (PLTR) stock.
“We believe as the war drags on, governments around the world are increasing their defense spending (including against cyber-attacks) and we expect Palantir to be a beneficiary of this trend,” the analyst said. “We do believe this could be only a short-term tailwind, but in our view could be enough to accelerate the Government business.”
That is not evident so far, however. Going by RBC’s US federal government spending tracker, no new contracts have been awarded yet, although Jaluria notes the US federal budget was not finalized until mid-March while non-US Government – which accounted for 24% of CY21 Government revenues – could “see upside” before the US.
There are other developments which provide Jaluria with a less bearish slant over the near-term. The company has signaled that it will probably bring to an end its “controversial” SPAC investments. The revenue pumping exercise has been a “red flag,” and Jaluria is “encouraged” to see the company bring them to a halt.
That said, Jaluria’s long-term concerns remain. The war could boost the company’s prospects in the short-term but there are questions on the “sustainability of potential tailwinds for the Government business.” There’s also growing competition, in particular from Databricks, Dataiku, and DataRobot. And while the company has shifted its stance on the SPAC deals, Jaluria still anticipates the amount of revenue which the SPACs account for will continue to increase (before making up a smaller portion of the commercial backlog).
Nevertheless, with the shares down 32% year-to-date, the RBC analyst upgraded his rating on PLTR from Underperform (i.e. Sell) to Sector Perform (i.e. Hold). Jaluria’s price target also moves higher – from $9 to $12, yet the figure still represents a modest 3% downside. (To watch Jaluria’s track…
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