Palantir cut to Underperform at Jefferies on ‘unsustainable valuation’

Jefferies downgraded Palantir Technologies (NYSE:PLTR) to Underperform from Hold citing unsustainable valuation, noting that it awaits a better entry point.

The firm has set a $28 price target on the stock.

Analysts led by Brent Thill noted that they underestimated the momentum that Palantir was able to generate after the launch of Artificial Intelligence Platform, or AIP, boot camps, and they underappreciated the company’s ability to put up four quarters of accelerating growth (for both top-line revenue and remaining performance obligations, or RPO) on easy comps after three straight quarters of less-than-stellar results from the first quarter of 2023 to the third quarter of 2023.

The analysts added that they acknowledge, the company delivering 30% year-over-year revenue growth (on a 17% comp) and 59% year-over-year RPO growth (on a -21% comp) is commendable. However, the analysts noted that, Palantir will no longer have easy comps heading into the fourth quarter and 2025, and they think it will be more difficult to accelerate growth from here.

In addition, the analysts said that insider selling is picking up. As the stock has rallied, management has sold more frequently through 10b5-1 plans.

The 10b5-1 plans allows insiders to set up a predetermined plan to sell company stocks as per insider trading laws.

Palantir’s CEO has sold more than $1.2B of stock in the past three months, or about 14% of his stake, the analysts noted.

Thill and his team said that there is risk for multiple compression. About 50% of Palantir’s shares outstanding are held by retail investors. This shareholder structure is a double-edged sword, as, a bigger retail base could further fuel multiple expansion on no news/change to fundamentals, but these dynamics can also cause a quick and significant multiple compression should the stock go out of favor, the analysts added.

Earlier this week, Palantir’s third quarter results and outlook had beaten estimates, drawing praise from Wall Street analysts.

Palantir’s stock was largely flat premarket on Thursday.