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SUMMARY
Parkev Tatevosian, CFA, analyzes Palantir Technologies' latest quarterly results, highlighting significant growth in contract signings and a substantial increase in his fair value estimate for the stock. He concludes that Palantir is now trading at a fair price, reflecting its strong performance and competitive advantages.
MAIN POINTS
- Palantir announces major deals, increasing its remaining deal value to $11.8 billion, up 98% year-over-year.
- Remaining performance obligations reach $4.5 billion, a 134% increase, with distinctions explained between deal value and RPO.
- Growth in contract signings and backlog outpaces revenue growth, indicating sustained future revenue potential.
- Management raises its revenue forecast for 2026, prompting upward revisions in free cash flow projections for subsequent years.
- The intrinsic value per share is revised from $100 to $129, with the current market price now within the margin of safety.
- Palantir is upgraded to a buy, considered an excellent business at a fair market valuation.
DETAILED ANALYSIS
Palantir Technologies has demonstrated remarkable growth in its contract portfolio, ending the first quarter with $11.8 billion in remaining deal value, nearly doubling year-over-year. This figure encompasses all signed contracts, both government and commercial, reflecting the company's ability to secure significant business across sectors. A more specific measure, remaining performance obligations (RPO), reached $4.5 billion, up 134% from the previous year.
RPO excludes contracts with terms under twelve months and those with termination for convenience clauses, which are prevalent in government contracts, thus providing a more conservative estimate of future revenue. The distinction between total deal value and RPO is crucial, as the latter offers a clearer picture of near-term revenue commitments, while the former includes longer-term and potentially more uncertain agreements.
The rate of increase in both deal value and RPO has outpaced Palantir's revenue growth, which stood at 85% for the quarter. This trend suggests that the company's revenue expansion is likely to persist, supported by a robust backlog of contracts. The management team has responded to this momentum by raising its revenue guidance for 2026, signaling confidence in continued business growth.
As a result of these developments, Parkev Tatevosian revised his free cash flow estimates upward for the current year and for projections through 2028 and beyond. The intrinsic value per share, calculated using updated cash flow forecasts, increased from approximately $100 to $129. Following a post-earnings stock price decline of over 7%, the current market price now falls within the margin of safety, making Palantir an attractive investment at a fair valuation.
The analysis concludes with a recommendation to consider Palantir as a buy, reflecting its strong fundamentals and competitive positioning.
LINKS
- YouTube channel membership for exclusive perks and access to spreadsheets.
- Special offer for The Motley Fool Stock Advisor.
- Parkev Tatevosian's book on stock evaluation.
- Discounted access to Fiscal.ai, a primary data source for investment research.
- Subscribe to Parkev Tatevosian's free monthly Substack newsletter.