Palantir Technologies Inc – Focusing on the US Government sector

Palantir Technologies Inc (NYSE: PLTR) is the technology company developing enterprise data platforms used by public, private and government.   

Investment Highlights - Palantir Technologies Inc – Hold at USD 25.20

• On the liquidity front, the Company had a greater current ratio of 2.54x than its industry median of 1.75x.
• The Company had forecasted its FY20 revenue to demonstrate 44% growth and its adjusted operating income to show 12% growth during FY20.
• The US Army had announced the second year of partnership with the Company on Army Vantage Program for a consideration of USD 113.8 million for the year.
• From a technical standpoint, the Company is trading at a 14-day RSI of 49.80, which indicates further upside potential of the stock.

Key Risks

• The Company is exposed to cybersecurity and compliance risk.
• The risk of lockdowns and restrictions may persist for an uncertain period, which might impact the earnings of the Company.

Recent Developments

On 06 January 2021, the Company announced that it had entered into a one-year contract worth USD 8 million with Fujitsu Limited to distribute its Foundry platform modules in the Japanese market.

On 04 January 2021, the Company updated that it was awarded a one year contract worth USD 22.5 million with SOMPO Holdings for developing real data platform.

On 21 December 2020, the Company updated that US Army’s Program Executive Office for Enterprise Information Systems (PEO EIS) had reaffirmed the second year of its partnership with Palantir for a total price of USD 113.8 million for the year.

Financial Highlights (for Q3 FY20 ended on 30 September 2020 as on 12 November 2020)

(Source: Company result)

• The Company had reported a 52% year-on-year increase of total net revenue to USD 289.4 million during Q3 FY20, due to an increase in demand for its software in the United States.
• The Company had reported a loss from operations in the amount of USD 847.8 million during the period, including an expense of USD 847 million as stock-based compensation for the recent listing.
• The Company had closed fifteen deals, with a worth of more than USD 5 million during Q3 FY20.
• Regarding the financial position, the Company had cash and cash equivalents of USD 1.8 billion as of 30 September 2020.

Share Price Chart (from 30 September 2020 to 08 January 2021)

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: EV/Sales Approach (NTM) (Illustrative)

Conclusion

The Company had signed a two-year contract worth USD 91 million with the U.S. Army Research Laboratory for artificial intelligence and Machine learning development during Q3 FY20. The Company had also signed USD 36 million contract to support NCATS (National Center for Advancing Translational Sciences) in cancer and Covid-19 research. The Company had increased its full-year 2020 revenue and adjusted operating income guidance. The company had forecasted its FY20 revenue to grow by 44% to USD 1.072 billion and its adjusted operating income to increase by 12% to USD 136 million. The Company would focus primarily on the US Government sector. The stock made a 52-week low and high of USD 8.90 and USD 33.50, respectively.

Based on its impressive project pipeline and the valuation method used above, we have given the "Hold" stance on Palantir Technologies Inc at the closing market price of USD 25.20 (as on 08 January 2021), while we will recommend fresh buying when upcoming catalyst becomes favourable.

Innovative Industrial Properties Inc – Delivered 197% growth in total revenues during Q3 FY20

Innovative Industrial Properties Inc (NYSE: IIPR) is the US-based real estate investment trust (REIT) focusing on acquisition and ownership of specialized industrial properties. It is the first and only real estate company listed on NYSE to focus on regulated U.S. cannabis industry.

Investment Highlights - Innovative Industrial Properties Inc – Hold at USD 178.44

• The Company had reported an exceptional growth of 197% in total revenues during Q3 FY20 compared to Q3 FY19.
• Regarding the profitability, the Company is having a higher EBITDA margin and a net margin of 81.8% and 56.0%, respectively, than its corresponding industry median of 56.4% and 11.7%, respectively.
• From the valuation perspective, the Company has lower Price/Earnings multiple, compared to the average of the corresponding multiple of the Financials sector.
• The Company had increased its Q4 FY20 dividend by 24% compared to dividend during the equivalent period of the prior year.
• From a technical standpoint, the Company is trading at a 14-day RSI of 48.15, which indicates further upside potential of the stock.

Key Risks

• The Covid-19 pandemic may result in reduced activity levels and postponement of projects.
• The Company is operating in a highly competitive market which could reduce its market share.
• The Company is exposed to the risk of fluctuating rental prices.

Recent Developments

On 08 January 2021, the Company announced that it had signed a long-term lease with Holistic Industries for its properties in Los Angeles, California.

On 17 December 2020, the Company updated that it had closed a deal regarding a property in Georgetown and a property in Olympia, which comprises around 181,000 sqft. of industrial space.

On 14 December 2020, the Company had declared a 6% increase in fourth-quarter 2020 dividend of USD 1.24 per share compared to its third quarter of 2020. The dividends are payable on 15 January 2021.

Financial Highlights (for Q3 FY20 ended on 30 September 2020 as on 04 November 2020)

(Source: Company result)

• The Company had delivered a 197% increase in total revenue to USD 34.3 million during Q3 FY20 compared to USD 11.6 million during Q3 FY19.
• The Company had also increased its net income from USD 6.2 million during Q3 FY19 to USD 18.9 million during Q3 FY20.
• The Company had reported net income per diluted share of USD 0.86 during Q3 FY20.
• The Company had around USD 161.1 million of cash and cash equivalent as of 30 September 2020.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

The Company had delivered resilient financial performance driven by various factors like the acquisition of new properties and contractual rent escalations. IIPR had expanded its portfolio to 66 properties comprising 5.40 million sqft. of space across 17 states. The Company had achieved its ninth dividend increase since the launch of its IPO in December 2016. The Company had declared 2020 annualized dividend equivalent to USD 4.96 per share. The Company had collected 100% of contractual rent due in months of July, August, September and October 2020. The stock made a 52-week high and low of USD 199.35 and USD 40.21, respectively.

Based on its strong financial position and decent growth prospects, we have given the "Hold" stance on Innovative Industrial Properties Inc at the closing market price of USD 178.44 (as on 08 January 2021). 

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

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