MAcro tailwinds are often a good way for struggling stocks to get a boost, and unfortunately, war can be a tailwind too. At least that’s what RBC’s Rishi Jaluria thinks Russia’s invasion of Ukraine will do to fight Palantir (PLTR) Stock.
“We believe that as the war drags on, governments around the world will increase their defense spending (including against cyber attacks) and we expect Palantir to benefit from this trend,” the statement said. analyst. “We think this could only be a short-term tailwind, but in our view it could be enough to speed up government business.”
It’s not obvious so far, though. According to RBC’s US federal government spending tracker, no new contracts have yet been awarded, although Jaluria notes that the US federal budget was not finalized until mid-March, while the non-US government – which accounted for 24% of CY21 government revenue – could “see upside down” before the United States.
There are other developments that give Jaluria a less bearish tilt in the short term. The company has signaled that it will likely end its “controversial” investments in SPACs. The revenue pumping exercise has been a ‘red flag’ and Jaluria is ‘encouraged’ to see the company stop them.
That said, Jaluria’s long-term concerns remain. The war could improve the company’s prospects in the short term, but there are questions about the “sustainability of potential tailwinds for government business”. There is also growing competition, especially from Databricks, Dataiku and DataRobot. And while the company has changed its stance on SPAC deals, Jaluria still anticipates that the amount of revenue that SPACs represent will continue to grow (before building up a smaller portion of the commercial backlog).
Nonetheless, with stocks down 32% year-to-date, the RBC analyst raised his rating on PLTR from Underperform (i.e. sell) to Sector Perform (i.e. say Hold). Jaluria’s price target is also increasing – from $9 to $12, but the figure is still a modest drop of 3%. (To see Jaluria’s track record, Click here)
Overall, based on a mix of ratings comprising 5 holds, 3 buys and 1 sell, the analyst consensus rates this stock as a hold. The bull side has the upper hand though, as the average price target sits at $14.78 and implies around 20% upside potential. (See PLTR stock forecast on TipRanks)
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