Oct 10, 2022Liked by Arny Trezzi, Emanuele Marabella
Top notch take, bravo, thank you! I did not see anybody around doing relative valuation on Palantir ... and especially via a Sum of The Parts Model by splitting the company in the 2 relevant segments which require way more work and diligence. Kudos!
I see your perplexity, but here the goal is valuing Palantir, which operates in Defence but has not the same business structure and metrics of the Defence peers (far superior as I showed).
The comparison with Defence Peers is the starting point to attribute a minimum multiple to Palantir's Government of which we just know its Sales and Growth.
Have you tried doing it on ev/ebitda? The way I see it makes no sense to value a company like BAH or LDOS on ev/sales because they do not optimize purely for sales nor would an investor want them to (big deal in industry where low cost contracts are abound). I understand growth is much different but it would be a more prevalent comparison imo.
Also, what is the difference between contracts within DoD that government service peers vie for vs. Palantir? I would assume that BAH,LDOS,SAIC etc are a better comparison to the business PLTR seeks to go after. Why wouldn't that be PLTR's comp set?
I agree that these Defence peers don't optimise for growth, but neither where they optimise (margins) they reach a comparable profitability to Palantir.
Palantir grows 10x them, 2.5x their FCF %-> deserves a much stronger multiple. Given the information we have, the only way to evaluate Palantir Government is with EV/Sales/Growth.
I decided the mix Peers to show that Palantir as a business is both superior to the cluster of contractors and the more consultancy like. In reality, no other company in the defence space is really comparable.
EBITDA is useful when you compare companies having the same capital requirement to grow the business. Here is not the case, for PLTR EBITDA ~ FCF while for defence contractor absolutely not.
We don't have Palantir's Government EBITDA therefore we can't value it based on that (that's the goal of the sum-of-parts). Without the Commercial side, Palantir Government likely already has ~40-50% EBITDA Margins.
Yeah I guess I'm just trying to understand what type of government contracts PLTR competes in and who their competition is in these respective contracts, if you have any sources
This is a heavy article 👏🏼
Top notch take, bravo, thank you! I did not see anybody around doing relative valuation on Palantir ... and especially via a Sum of The Parts Model by splitting the company in the 2 relevant segments which require way more work and diligence. Kudos!
Thanks to you and to your precious hints!
welcome, anytime bud, happy to help
Makes no sense to value defense peers on ev/sales use ev/ebitda, ev/ebidapt, or ev/ebit (for LMT and other primes)
Hi Spencer, thanks for your feedback.
I see your perplexity, but here the goal is valuing Palantir, which operates in Defence but has not the same business structure and metrics of the Defence peers (far superior as I showed).
The comparison with Defence Peers is the starting point to attribute a minimum multiple to Palantir's Government of which we just know its Sales and Growth.
ps. Bank of America did the same methodology
Hi Arny,
Have you tried doing it on ev/ebitda? The way I see it makes no sense to value a company like BAH or LDOS on ev/sales because they do not optimize purely for sales nor would an investor want them to (big deal in industry where low cost contracts are abound). I understand growth is much different but it would be a more prevalent comparison imo.
Also, what is the difference between contracts within DoD that government service peers vie for vs. Palantir? I would assume that BAH,LDOS,SAIC etc are a better comparison to the business PLTR seeks to go after. Why wouldn't that be PLTR's comp set?
Thanks!
I agree that these Defence peers don't optimise for growth, but neither where they optimise (margins) they reach a comparable profitability to Palantir.
Palantir grows 10x them, 2.5x their FCF %-> deserves a much stronger multiple. Given the information we have, the only way to evaluate Palantir Government is with EV/Sales/Growth.
I decided the mix Peers to show that Palantir as a business is both superior to the cluster of contractors and the more consultancy like. In reality, no other company in the defence space is really comparable.
EBITDA is useful when you compare companies having the same capital requirement to grow the business. Here is not the case, for PLTR EBITDA ~ FCF while for defence contractor absolutely not.
We don't have Palantir's Government EBITDA therefore we can't value it based on that (that's the goal of the sum-of-parts). Without the Commercial side, Palantir Government likely already has ~40-50% EBITDA Margins.
Hope I answered to your doubts!
Yeah I guess I'm just trying to understand what type of government contracts PLTR competes in and who their competition is in these respective contracts, if you have any sources
I chose L3Harris and Raytheon because they compete/parter for software contracts - they IT branches-.
Look TITAN for instance
https://breakingdefense.com/2022/06/army-moves-ahead-with-palantir-and-raytheon-for-next-phase-of-titan/