Why Palantir's 'highly volatile' stock is worth a buy, according to a new bull

By Emily Bary

Palantir is 'giving the market what it wants in terms of margin expansion and profitability,' says Argus analyst

Palantir Technologies Inc.'s stock is "highly volatile and priced at a premium," according to Argus Research analyst Joseph Bonner.

Yet the company is also "highly differentiated," one reason why Bonner initiated coverage of its shares with a buy rating and $29 target price late Friday. That target implied 23% upside from Friday's close, though Palantir's stock (PLTR) rose 6% in Monday's session, so the remaining upside is about 16%.

Bonner noted that despite Palantir's reputation serving defense and intelligence clients, he expects the company's commercial business to be its major driver going forward. "Like many enterprise software companies we cover, Palantir is reliant upon new AI-powered applications to expand its business," he wrote.

Read: How Adobe quieted the doubters to send its stock cruising after earnings

He also highlighted the company's 81% rise in adjusted operating profit during the first quarter, while adjusted operating margins saw a nearly 12-percentage-point expansion.

"Management noted that the strong margin expansion reflected the robust unit economics of Palantir's business," Bonner said. "We would also note that the company is giving the market what it wants in terms of margin expansion and profitability."

He also cheered elements of the company's contract strategy. For instance, Palantir "looks to sign five-year contracts with clients, a rather long contract term, with revenue recognized ratably - yet another nod tothe complexity of its solutions."

But Palantir can also be flexible, as evidence by a consumption-based contract struck with the U.K. National Health Service late last year, Bonner said.

While Bonner took a positive view of Palantir shares, CFRA analyst Janice Quek was more measured in a weekend note to clients that reiterated a hold stance.

"While [Palantir's] recent results have demonstrated the positive reception of [the Artificial Intelligence Platform] and suggests its potential to sustain double-digit growth for the company in the near to mediumterm, we are cautious of economic risks that have softened software spending across the industry," Quek wrote.

Read: Broadcom just keeps getting bigger as it's deemed best AI stock besides Nvidia

Further, the company's forecast for this year "signals some conservatism in its outlook," she wrote. "The company also saw slower demand outside of the U.S during the quarter, which could persist in the uncertain environment."

Palantir shares are up 46% so far this year.

-Emily Bary

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

06-17-24 1714ET

Copyright (c) 2024 Dow Jones & Company, Inc.