Wolfe Research analyst Alex Zukin downgraded Palantir to Underperform from Peer Perform with a $4.50 price target. The company’s sales growth has decelerated by 30 points while operating margins have contracted from the mid-30% range to the mid-teens over the past few years with free cash flow on the same trajectory, Zukin tells investors in a research note. The “lumpiness and unpredictability” of both existing government contracts as well as potential awards “make it difficult to model and have confidence in the business,” he adds. Further, Palantir’s commercial business has gone from a mid-20% grower to low double digits as the current product offering is expensive, requires customization, and the general go to market motion is “sub-par,” based on channel checks, contends Zukin. His estimates are below Street expectations and he sees the opportunity to “make money on the short side.” Zukin models for Palantir total revenue decelerating further, along with continued margin degradation in fiscal 2023 as the company continues to invest.
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