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Palantir’s stock jumps, but ‘hearty rally’ sparks debate over profits

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Palantir Technologies Inc.’s stock is surging 13% in Tuesday morning trading, and analysts can’t agree on whether that big boost is warranted.

The stock’s sharp move higher comes in the wake of Palantir’s
fourth-quarter earnings report, which brought a surprise profit — the data-software company’s first ever — but also an underwhelming revenue forecast for the year ahead.

See more: Palantir posts first profitable quarter, stock soars after earnings

Though Monness, Crespi, Hardt & Co. analyst Brian White has a neutral view on Palantir’s stock, he was willing to give the company credit for the latest numbers.

“In the next-gen software world, simply generating positive adjusted profit is a harrowing endeavor for most, never mind a GAAP profit,” White wrote. “In our view, this achievement highlights the value of Palantir’s software to its customers and management’s spending discipline.”

He added that the company’s “strong execution is worthy of a hearty rally today,” though he still worries that “the darkest days of this downturn are ahead of us,” hence his continued cautious stance on the name.

Others took a harsher view, including Citi Research analyst Tyler Radke, who isn’t quite sold on the profit cheers.

“While the press release highlights improved profitability including the first-ever quarter of positive GAAP net income, we note [Palantir] only achieved this through a $44 [million] other income benefit from the acquisition of their Japan [joint venture],” he wrote. “We note this JV acquisition may have also boosted international commercial revenue, making the beat look low quality.”

Radke also has concerns about Palantir’s outlook, writing that even though the annual forecast fell below the consensus view, it still appears “aggressive” given its “implied acceleration throughout the year.”

He reiterated a sell rating and $5 target price on the stock.

William Blair analyst Kamil Mielczarek agreed that Palantir “would have otherwise not been profitable” if not for the consolidation benefits related to the Japanese joint venture.

“While the company beat non-GAAP operating margin guidance, free-cash-flow margin was 9.6% for the year, down from 21% in calendar 2021,” he wrote. “We see potential for a modest beat-and-raise cadence but do see downside risk to guidance from macro uncertainty.”

Mielczarek has an underperform rating on Palantir’s stock, which is off 37% over the past 12 months, while the S&P 500
has lost about 6%.

Brian Gesuale of Raymond James remained firmly upbeat as he reiterated a strong buy rating and $15 target price on the shares. While he acknowledged that “the sources of the [fourth-quarter] profit aren’t all core to our thesis and long-term outlook for the company,” he noted that the company is targeting a GAAP profit on an annual basis for 2023.

“[Palantir] is on track to produce a full year of profit in 2023 — driven by catalysts that align nicely with our long-term outlook, such as momentum in healthcare markets, continued government growth, market-share gains as its sales force matures, [stock-based-compensation] reductions and strong international demand,” he wrote.

Gesuale added that other positives include “positive cash flow, the pivot to profitability, expectations that appear reasonable” and the fact that about 16% of Palantir’s market capitalization is in cash.


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