Shares of Palantir Technologies Inc. gained Monday after Morgan Stanley ended its bearish call on the software company.
While Morgan Stanley’s Keith Weiss still sees risks for Palantir
he thinks these are priced into the stock, which were trading at an all-time-low multiple of 8.7 times 2023 estimates for enterprise value to sales as of the publication of his note. Weiss upgraded Palantir’s stock to equal weight from underweight in his Monday report to clients.
Among the risks for Palantir are that its commercial business could decelerate and that its “unsustainable” operating margins could decline, according to Weiss. But he also sees some positives to Palantir’s story, including its “well-positioned” government business.
Though Palantir’s government business slowed recently, Weiss said that the trend is “not indicative of the true underlying strength of the platform” as it rather reflects “general volatility in government deals and the lack of new starts caused by an unpassed federal budget for fiscal year 2022.”
The Ukraine invasion will likely have a “neutral” impact on government initiatives to modernize information technology, he continued, but he sees the possibility of upside for Palantir when it comes to intelligence business. He also commented that the crisis in Ukraine might speed up the government’s process of settling on a budget, “enabling government spend sooner than expected.”
Weiss noted that his new $16 price target is still considerably above current levels for Palantir’s stock, which closed Monday at $11.11. But to become more “positive” on the name, he said he’s looking for better visibility into issues like the payoff from investments in the commercial business and the “sustainable level of operating margins.”
Shares of Palantir advanced 1.4% in Monday’s session, though they’re off about 43% over a three-month span as the S&P 500
has lost roughly 10%.