Palantir (NYSE:PLTR) shares moved higher at the start of Friday's session after the company announced a one-year extension of its partnership with the U.S. Army’s Program Executive Office for Enterprise Information Systems (PEO EIS) worth up to $115 million.
The provider of data analytics and artificial intelligence said the contract contract includes $35.6 million in initial funding and an award of $97.4 million.
Palantir shares hit a high of $19.15 early in Friday''s session before falling back to around the $18 per share mark.
PLTR, which gains a significant portion of its revenue via government contracts, said that under the extended deal, it will continue to provide its open data and analytics platform and supply new AI-enabled capabilities and open platform infrastructure.
“Palantir is honored to extend our work with the U.S. Army as it evolves into the Army Data Platform solution,” said Akash Jain, President of Palantir USG. “This extension is evidence of the value we bring to the nation’s defense, including our joint efforts to provide more commercial technology providers the opportunity to equip soldiers with the innovation they need to meet their most pressing challenges.”
Following the news, analysts at William Blair maintained a long-held bearish view of the stock, keeping an Underperform rating on the shares.
The analysts stated in a note that shares of Palantir “may start to reflect reality over the next three months once it is fully digested that the U.S. Army last night only awarded Palantir a short-term, one-year $115 million ceiling extension for Palantir’s second-largest contract on its books, the U.S. Army Vantage program.”
“When the Army originally gave Palantir the Vantage contract in December 2019, it awarded Palantir a $458 million four-year deal,” the analysts wrote. “That deal ended yesterday.”
“Not only was the duration for the new contract reduced, but the max annual run-rate was even slightly downsized from the prior $116 million revenue run-rate,” they added. “Palantir will likely not even receive the $115 million as the Army announcement indicated that is just a ceiling value. The Army has a track record of only awarding Palantir less than 60% of the potential value of ceiling contracts, with Project Maven, CD1, and CD2 as prominent examples.”
On the opposite end of the spectrum, analysts at BofA maintained a Buy rating and $21 price target on the stock, saying the one-year extension was unexpected.
“The up to $115mn contract extension is in line with the annualized rate of the original contract award ($458mn), slightly below the annualized actual action obligation ($480mn) and 15% higher than Option year 2/3 average obligations. $35.6mn were obligated at the time of the award,” said the analysts.
“We think that PLTR has a strong position to remain a key provider of data engineering & orchestration capabilities in a growing data-centric operational strategy. The recent contract extension and the fact that PLTR can add AIP capabilities to existing offerings support our thesis,” they argued.