New Palantir Price Target Is Easily Wall Street High After 'Yowza' Quarter
The single heaviest weighted stock in the Sarge-folio continues to impress. And so does CEO Alex Karp.
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All hail Alex Karp!
On Monday evening, long-time Sarge-folio and "Stocks Under $10" core holding Palantir Technologies PLTR released its second-quarter financial results. This stock is and has been, by far, the single heaviest weighted stock in the Sarge-folio, so readers can understand why I am a little bit enthusiastic about the CEO. The stock up 8% in trading Tuesday.
At that level, the stock is up 235% over 12 months and up 2,584% since its initiation to the "SU$10" portfolio at TheStreet Pro. We came into these earnings with a Wall Street-high price target of $181. By the end of this piece, we will decide whether or not to leave that target where it is.
We have at times taken token profits when our price targets have been met on the way up. That has been and is one of my core trading disciplines. With this name though, it's tough not to make the argument that every share sold along the way was indeed a share sold in error.
CEO Alex Karp commented in the press release: “This was a phenomenal quarter. We continue to see the astonishing impact of AI leverage. Our Rule of 40 score was 94%, once again obliterating the metric. Year-over-year growth in our U.S. business surged to 68%, and year-over-year growth in U.S. commercial climbed to 93%. We are guiding to the highest sequential quarterly revenue growth in our company’s history, representing 50% year-over-year growth.” Your pal commented... "Yowza."
The Quarter
For the three-month period ended June 30, Palantir generated adjusted EPS of $0.16 (GAAP EPS: $0.13) on revenue of $1.004 billion. The top-line print reflected year-over-year sales growth of 47.5%, while the bottom-line numbers, both adjusted and as reported, both beat the Street's expectations. The adjustment made to these results was for the sole purpose of stock-based compensation and related taxes.
The numbers beneath the numbers are just astonishing. For the quarter, U.S.-based revenue generation grew 68% to $733 million. Within that number, U.S. commercially driven revenue grew 93% to $306 million, while U.S. government-driven revenue grew 53% to $426 million.
The firm closed 157 deals of at least $1 million during the quarter, 66 deals of at least $5 million and 42 deals of at least $10 million. Palantir closed a firm-record $2.27 billion worth of total contract value (+140%), which included a firm-record $843 million worth of U.S. commercial total contract value (+222%). Customer count increased by 43% year over year and by 10% sequentially.
Operations
As revenue generation grew 47.5% to $1.004 billion, the cost of that revenue increased 50.1% to $192.934 million. This left a gross profit of $810.763 million (+47.5%) as gross margin dropped from 81% to 80.8%. Total expenses grew 21.9% to $541.446 million, leaving a GAAP operating income of $269.317 million (+155.7%) soared from 15,5% to 26.8%. Adjusted operating income increased 83.1% to $464.385 million as adjusted operating margin jumped from 37% to 46%.
After accounting for interest, other income & expenses and taxes, GAAP net income attributable to shareholders printed at $326.727 million (+143.6%). This works out to $0.13 per fully diluted share, which compares very well to the year ago comparison of $0.06. On an adjusted basis, net income attributable to shareholders printed at $404.551 million, working out to $0.16 per fully diluted share. That also compares well to the $0.09 print from the same period last year.
Guidance
For the current quarter, Palantir is projecting total revenue of $1.083 billion to $1.087 billion, which brings the low end of the range well above the consensus view for about $983 million. Adjusted operating income is seen at $493 million to $497 million.
For the full year, Palantir increased the firm's guidance on total revenue to $4.142 billion to $4.15 billion. This is also well above what had been the consensus view for something close to $3.9 billion. U.S. commercially driven revenue is seen in excess of $1.302 billion, which would be good for annual growth of at least 85%.
Adjusted income is seen at $1.912 billion to $1.92 billion. Full-year free cash flow is projected at $1.8 billion to $2 billion, and of course the firm reaffirmed its expectation to post positive GAAP operating and net incomes for each quarter of this year.
Fundamentals
For the quarter reported, Palantir generated operating cash flow of $539.251 million (+274%). Add to that, $37.152 million in taxes related to stock-based compensation. Out of that total came $7.634 million in capex spending. This left free cash flow of $568.769 million (+283%). Holy Moly.
Turning to the balance sheet, Palantir ended the period with a cash position of $6 billion and current assets of $6.89 billion. Current liabilities add up to $1.09 billion, including no short-term debt and $376.784 million in deferred revenue (which is not a true financial obligation). This puts the firm's headline current ratio at an extremely muscular 6.32. Once adjusted for those deferred revenues, that ratio rises to an absolutely Herculean 9.66.
Total assets amount to $7.366 billion. This includes nothing intangible. Total liabilities less equity comes to $1.34 billion including no long-term debt and another $44.638 million in deferred revenue. This balance sheet is not just strong, this is one of the most fortress-like and most well managed balance sheets that I have had the pleasure to analyze in my almost 40-year career.
This Morning...
Five-star rated (by TipRanks) analyst Mariana Perez Mora reiterated her "buy" rating on PLTR while increasing her price target price to $180 from $150. Perez Mora is not just merely a 'five star" analyst, she's literally considered to be a top 1% analyst with a 69% success rate over the past year and an average return of 49.4%. She's an all-star. Unless someone else published something I have not yet seen, that would leave my $181 target as the "still Street high" target price.
That leaves the chart.
The Chart
Readers will see that this stock has consistently found support at its 21-day exponential moving average (EMA). Relative Strength remains quite robust; it is not in a technically overbought state, but has turned back in that direction on Monday. That will extend this morning.
The daily moving average convergence/divergence (MACD) had gotten quite neutral. However, that will change Tuesday. The histogram of the 9-day EMA was sitting precisely on the zero-bound and will move into positive territory after the opening bell. In addition, the 12-day EMA will cross over the 26-day EMA after the bell with both in positive territory. That's bullish.
The upper trendline of our Raff Regression model becomes the new pivot, which will in turn force my price target higher yet again. For traders, who might trade around a core position, I think the shares can be bought in between the 21-day EMA and the 50-day simple movng average (SMA). Investors might want to wait until the lower trendline of the Regression model is tested. That will happen at some point.
Palantir Technologies (PLTR)
Price Target: $205 (up from $181) ... still easily the Street high.
Pivot: $171 (and moving).
Add: From 21-day EMA (currently $153) down to 50-day SMA (currently $142).
Panic: Loss of 200-day SMA (currently $98).
At the time of publication, Guilfoyle was long PLTR equity.
