BofA defends Palantir, says stock selloff looks overdone and sees over 100% upside

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By Senad Karaahmetovic

Bank of America analysts reiterated a Buy rating on Palantir (NYSE:PLTR) stock following the latest selloff. Shares hit a fresh record low yesterday at $6.04 before bouncing to close just over 3% higher on the day.

Still, Palantir stock price is down about 18% since December 13. The analysts blame the selloff on 3 factors:

1. Software infrastructure spending heading into a recession;
2. News articles criticizing the company’s unsuccessful SPAC-investment strategy; and
3. Sell-side consensus downgrades.

“In our view, Palantir’s SPAC investments strategy seemed to be poorly timed and has not achieved its investment objectives thus far,” they wrote in a client note.

“This strategy indicates to us the company’s aggressive approach to sales. We expect Palantir to repeat another year of strong sales, as continued supply chain disruption and an increasingly expected recession calls for further operations optimization and data management. However, as corporate software budgets struggle, we expect Palantir to pursue that growth with lower pricing and margins.”

The analysts expect commercial sales to come ahead of the consensus in 2023, while their estimates for EBITDA sit below the average analyst estimate.

The analysts also reiterated the $14 per share price target, which implies an upside potential of 115% relative to yesterday’s closing price. They told the firm’s clients that at $6 a share they get Palantir’s commercial business for free.

“First, the company is sitting on $2.4bn of net cash, about $1/sh (and is already cash profitable). Second, Palantir is working with defense primes and services contractors to expand the use of its products. Palantir is only one out of three companies with IL6 certification. We estimate the more reliable and higher margin government exposure is worth $7/sh alone. This would imply an EV/EBITDA/Growth multiple of 1.9x (vs. defense services at 2.8x),” they concluded.

On the other hand, William Blair analysts reiterated an Underweight rating on Palantir stock and said:

"We continue to see risk to calendar 2023 consensus estimates. Consensus estimates currently imply 2023 revenue growth of 20% and 21% non-GAAP operating margin. Both are above the ex-SPAC growth and margins that Palantir is on track to deliver in 2022."

Palantir stock is down nearly 65% year-to-date (YTD).