Palantir’s Bulls and Bears

Goldman Sachs upgrades the recent IPO while Citi says Sell

Palantir Technologies Inc. (PLTR) builds and deploys software platforms for the intelligence community in the United States to assist in counterterrorism investigations and operations.

It offers Palantir Gotham, a software platform for government operatives in the defense and intelligence sectors, which enables users to identify patterns hidden deep within datasets, ranging from signals intelligence sources to reports from confidential informants, as well as facilitates the handoff between analysts and operational users, helping operators plan and execute real-world responses to threats that have been identified within the platform.

The company also provides Palantir Foundry, a platform that transforms the ways organizations operate by creating a central operating system for their data; and allows individual users to integrate and analyze the data they need in one place. 

The company took the unusual route of becoming a public company by directly listing it’s shares and bypassing the brokers. Shares came public around $9 and shot up to $45 a share before pulling back. There were a number of brokers who made comments about the shares today following the company’s earnings.

Earnings

Palantir Technologies reported 4th Quarter December 2020 earnings of $0.07 per share on revenue of $322.1 million yesterday morning. The consensus earnings estimate was $0.02 per share on revenue of $300.4 million.

The company said it expects 2021 revenue of $1.42 billion or more. The current consensus revenue estimate is $1.41 billion for the year ending December 31, 2021.

Goldman Sachs

Goldman Sachs analyst Christopher #Merwin upgraded Palantir Technologies to Buy from Neutral with a price target of $34, up from $13. Palantir reported “strong” Q4 results and its Q1 guidance called for revenue growth of 45%, while fiscal 2021 revenue guidance was for 30%-plus, Merwin tells investors in a research note. The analyst is “encouraged” to see management guide to $4B of revenue in fiscal 2025, implying a 30% annual growth from fiscal 2020. With a growing backlog of $2.8B in deal value, there is increasing visibility into the achievability of that long-term target, says Merwin.

Further, the analyst believes Palantir’s recent efforts to modularize Foundry and add channel partners like IBM “should improve product market fit” for the commercial business in the coming quarters.

Morgan Stanley

Morgan Stanley analyst Keith #Weiss raised the firm’s price target on Palantir to $19 from $17, telling investors after the company’s Q4 report that Palantir’s results in FY20 showed a big expansion of existing customers, “huge leverage” in operating margins and the seeds for future distribution capability.

However, he keeps an Underweight rating on the shares as he would like to see evidence of effective investment behind the company’s opportunity to support growth and what he views as a “lofty valuation.”

Jefferies

Jefferies analyst Brent #Thill noted that Palantir reported a top and bottom line beat in Q4 along with “robust” large deal metrics and said it is targeting $4B or more in 2025 revenues, but that the stock remains under pressure due to Thursday’s lock-up expiry and the recent run-up that saw the stock up 35% year-to-date ahead of the report.

However, he views Palantir as “a highly unique story for long-term investors” given that he thinks its growth sustainability at significant scale, and “aggressive profitability ramp,” puts the stock “in rarified air” among software companies. Thill maintains a Buy rating on the stock, which he expects to “trend to $40,” his price target on Palantir shares.

RBC Capital

RBC Capital analyst Matthew #Hedberg raised the firm’s price target on Palantir to $27 from $15 and keeps a Sector Perform rating on the shares.

The company ended 2020 with a “solid” set of Q4 results while forecasting acceleration and margin improvement in Q1, the analyst tells investors in a research note. Hedberg adds however that while he is positive on Palantir’s catalysts, he remains on the sidelines due to the stock’s “full valuation”.

Citi

Citi analyst Tyler #Radke keeps a Sell rating on Palantir Technologies with a $15 price target following the company’s Q4 results.

The results featured “solid” reported revenue upside, but came with “signs of growth drivers narrowing with new customers growth still lacking and Commercial revenue missing expectations,” Radke tells investors in a research note.

The new five-year revenue target of $4B “looks high,” but ultimately may be a non-event for the stock, says the analyst. He thinks the stock is overvalued and “could be particularly volatile” into the upcoming lockup on February 18.

Insiders

Peter Thiel, Chairman, and well connected Washington insider

Several insiders have sold shares into the lockup expiry on Thursday but Peter Thiel, Chairman of the Board, reported a 5% ownership of the stock.

PLTR last traded at $28.50.

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New York sues to dissolve NRA

New York Attorney General James files lawsuit to dissolve NRA

New York Attorney General Letitia James has filed a lawsuit seeking to dissolve the National Rifle Association.

According to a statement, “Attorney General James charges the organization with illegal conduct because of their diversion of millions of dollars away from the charitable mission of the organization for personal use by senior leadership, awarding contracts to the financial gain of close associates and family, and appearing to dole out lucrative no-show contracts to former employees in order to buy their silence and continued loyalty.

The suit specifically charges the NRA as a whole, as well as Executive Vice-President Wayne LaPierre, former Treasurer and Chief Financial Officer Wilson “Woody” Phillips, former Chief of Staff and the Executive Director of General Operations Joshua Powell, and Corporate Secretary and General Counsel John Frazer with failing to manage the NRA’s funds and failing to follow numerous state and federal laws, contributing to the loss of more than $64M in just three years for the NRA.

NY Attorney General Letitia James

In the complaint, Attorney General James lays out dozens of examples where the four individual defendants failed to fulfill their fiduciary duty to the NRA and used millions upon millions from NRA reserves for personal use, including trips for them and their families to the Bahamas, private jets, expensive meals, and other private travel.

In addition to shuttering the NRA’s doors, Attorney General James seeks to recoup millions in lost assets and to stop the four individual defendants from serving on the board of any not-for-profit charitable organization in the state of New York again.”

It further states that, “the NRA is alleged to have fostered a culture of noncompliance and disregard for internal controls that led to the waste and loss of millions in assets and contributed to the NRA reaching its current deteriorated financial state.

Vista Outdoor (VSTO), Stockwinners

The NRA’s internal policies were repeatedly not followed and were even blatantly ignored by senior leaders. Furthermore, the NRA board’s audit committee was negligent in its duty to ensure appropriate, competent, and judicious stewardship of assets by NRA leadership.

Specifically, the committee failed to assure standard fiscal controls, failed to respond adequately to whistleblowers, affirmatively took steps to conceal the nature and scope of whistleblower concerns from external auditors, and failed to review potential conflicts of interest for employees.

Smith & Wesson Brands (SWBI), Stockwinners

The lawsuit alleges that the four men instituted a culture of self-dealing, mismanagement, and negligent oversight at the NRA that was illegal, oppressive, and fraudulent.

They overrode and evaded internal controls to allow themselves, their families, favored board members, employees, and vendors to benefit through reimbursed expenses, related party transactions, excess compensation, side deals, and waste of charitable assets without regard to the NRA’s best interests.

Sturm, Ruger (RGR), Stockwinners

The complaint lays out numerous other instances in which LaPierre, Phillips, Powell, Frazer, and other executives and board members at the NRA abused their power and illegally diverted or facilitated the diversion of tens of millions of dollars from the NRA.

These funds were in addition to millions of dollars the four individual defendants were already receiving in grossly excessive salaries and bonuses that were not in line with the best practices and prudent standards for evaluating and determining compensation.”

Stocks to Watch

Companies in the firearm space include Sturm, Ruger (RGR), Smith & Wesson Brands (SWBI), and Vista Outdoor (VSTO).

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Department of Defense back’s Microsoft cloud contract

DOD issues report on JEDI contract, sees award to Microsoft as proper

The Department of Defense Office of Inspector General has issued a report on the Joint Enterprise Defense Infrastructure Cloud Procurement.

“On June 11, 2019, the Department of Defense Office of Inspector General initiated a review of the DoD Joint Enterprise Defense Infrastructure Cloud procurement, and an investigation into allegations that former DoD officials engaged in ethical misconduct related to the JEDI Cloud procurement,” the Department of Defense Office of Inspector General said in a statement.

DOD OIG says JEDI contract was handled correctly

According to the report, the DoD OIG concluded that “the DoD’s decision to award the JEDI Cloud contract to a single contractor was consistent with applicable law and acquisition standards. […] We concluded that the procuring contracting officer’s determination to use a single-award contract was in accordance with the Federal Acquisition Regulation and was reasonable.

Amazon sued to overturn the contract , Stockwinners

We also concluded that the Undersecretary of Defense for Acquisition and Sustainment’s authorization for a single-award contract was consistent with applicable law.

DOD awarded the contract to Microsoft, Stockwinners

In addition, we concluded that the JEDI Cloud requirements in the Request for Proposal were reasonable and based on approved requirements, essential cloud capabilities, DoD cloud security policy, and the Federal Risk and Authorization Management Program guidance.

In addition, we concluded that the DoD’s inclusion of gate requirements was reasonable and did not overly restrict competition. We also concluded that the DoD conducted the JEDI Cloud source selection in compliance with the FAR, the DoD Source Selection Procedures, the JEDI Cloud Source Selection Plan, and the Request for Proposals, Sections M1 – Basis for Award and M2 – Evaluation Process.

We concluded that the source selection team’s evaluation of the contractors’ proposals was consistent with established DoD and Federal source selection standards. We also note that on February 13, 2020, the U.S. Court of Federal Claims issued an opinion and order which granted Amazon’s request for a preliminary injunction and stopped the DoD from proceeding with JEDI Cloud contract activities until further order of the court.

The court concluded that Amazon is likely to demonstrate in the course of their bid protest that the DoD erred in its evaluation of a discrete portion of Microsoft’s proposal for the JEDI Cloud contract. The court’s decision was not inconsistent with our conclusion that the source selection process used by the DoD was in compliance with the FAR, the DoD Source Selection Procedures, the JEDI Cloud Source Selection Plan, and the Request for Proposals, Sections M1 – Basis for Award and M2 – Evaluation Process.

In this report, we do not draw a conclusion regarding whether the DoD appropriately awarded the JEDI Cloud contract to Microsoft rather than Amazon Web Services.

We did not assess the merits of the contractors’ proposals or DoD’s technical or price evaluations; rather we reviewed the source selection process and determined that it was in compliance with applicable statutes, policies, and the evaluation process described in the Request for Proposals. In addition, however, we concluded that after the JEDI Cloud Contract award, the DoD improperly disclosed source selection and proprietary Microsoft information to Amazon.

In addition, the DoD failed to properly redact names of DoD source selection team members in the source selection reports that were disclosed to Amazon and Microsoft. […] we believe the evidence we received showed that the DoD personnel who evaluated the contract proposals and awarded Microsoft the JEDI Cloud contract were not pressured regarding their decision on the award of the contract by any DoD leaders more senior to them, who may have communicated with the White House.”

AMZN last traded at $2308. MSFT last changed hands at $172.44.

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L3Harris Security Detection sold for $1 B

Leidos to acquire L3Harris security detection, automation businesses

Leidos (LDOS) announced that it has entered into a definitive agreement to acquire L3Harris Technologies’ (LHX) security detection and automation businesses, for $1B in cash.

The boards of both companies unanimously approved the transaction. L3Harris’ security detection and automation businesses provide airport and critical infrastructure screening products, automated tray return systems and other industrial automation products.

L3Harris sells its security division for $1B, Stockwinners

With headquarters in Tewksbury, Massachusetts and Luton, England, the combined businesses have 1,200 employees and a global sales and services operations footprint with more than 20,000 systems deployed world-wide across more than 100 countries.

The businesses serve customers in the aviation, transportation, government and critical infrastructure markets.

Leidos goes on $1B shopping spree, Stockwinners

This acquisition adds products that expand Leidos’ offerings to create a security and detection platform.

These products include checkpoint security products like checkpoint CT scanners, people scanners, comprehensive explosives trace detectors, checked baggage screeners and automated tray return systems, or ATRS.

This business expands customer penetration internationally, helping deliver on a stated objective to diversify revenue globally.

The deal will increase Leidos’ international security products revenue more than six-fold. The acquisition also enables the company to leverage technology investments across the combined portfolio to accelerate innovation and improve service efficiency for customers.

The transaction is expected to be immediately accretive to Leidos’ revenue growth, EBITDA margins, and non-GAAP diluted earnings per share upon closing.

Leidos expects to fund the $1B cash transaction through a combination of cash on hand and incremental debt.

The transaction is expected to close by the end of Q2, subject to the satisfaction of customary closing conditions, including receipt of regulatory approvals.

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Circor receives $1.7B takeover offer

Crane proposes to acquire Circor for $45.00 per share in cash

Crane proposes to acquire Circor for $45.00 per share in cash, Stockwinners

Crane Co. (CR) announced that it has submitted a proposal to the Board of Directors of CIRCOR International (CIR) to acquire CIRCOR for $45 per share in cash.

CIRCOR International, Inc. designs, manufactures, and markets engineered products and sub-systems worldwide. It operates through three segments: Energy, Aerospace and Defense, and Industrial. 

The proposal represents a 47% premium over yesterday’s closing price and a 37% and 51% premium over a three- and six-month volume weighted average share price, respectively.

This reflects an enterprise value of approximately $1.7B at a multiple of approximately 13.5x the last 12-month adjusted EBITDA. Crane Co. proposed the all-cash transaction to CIRCOR’s President and CEO Scott Buckhout on April 30, the terms of which were confirmed by a letter to the CIRCOR Board of Directors.

On May 13, the CIRCOR Board summarily rejected Crane Co.’s proposal with no offer of discussions or due diligence.

“While we had hoped to complete a transaction privately, the Board’s rejection of our proposal without comment or discussion led to our decision to make our proposal known to CIRCOR shareholders so they can express their views directly to the CIRCOR Board,” said Max Mitchell, Crane Co. President and CEO.

“Our proposal provides CIRCOR shareholders with attractive value and certainty compared to the continued uncertainty surrounding CIRCOR’s plans to improve operating performance.

Based on CIRCOR’s history of underperformance and inability to meet its own financial targets, we believe CIRCOR’s standalone plan is unlikely to generate value comparable to what we are proposing.”

Mitchell continued, “We believe that this business, which has great brands and products, has been meaningfully undermanaged for years.

This has resulted in a persistent decline in CIRCOR’s share price, making it the worst performer of the peers in the S&P Midcap Capital Goods Index since the end of 2013.

Based upon the strength of our disciplined operating approach, Crane Co. is well positioned to integrate CIRCOR’s businesses into our focused portfolio, realize operational synergies, and deliver long-term value to Crane shareholders.

Combining CIRCOR’s Fluid Handling, Aerospace and Defense assets with Crane’s portfolio of leading brands would create a stronger competitor with additional scale and growth potential.”

CIR +13.49 to $44.15.

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L3 Technologies and Harris to merge

Harris, L3 Technologies to combine in merger of equals

L3 Technologies and Harris to merge, Stockwinners
L3 Technologies and Harris to merge, Stockwinners

L3 Technologies and Harris to merge, Stockwinners
L3 Technologies and Harris to merge, Stockwinners

Harris Corporation (HRS) and L3 Technologies (LLL) have agreed to combine in an all stock merger of equals.

Under the terms of the merger agreement, which was unanimously approved by the boards of directors of both companies, L3 shareholders will receive a fixed exchange ratio of 1.30 shares of Harris common stock for each share of L3 common stock, consistent with the 60-trading day average exchange ratio of the two companies.

Upon completion of the merger, Harris shareholders will own approximately 54% and L3 shareholders will own approximately 46% of the combined company on a fully diluted basis.

The combined company, L3 Harris Technologies, will be the 6th largest defense company in the U.S. and a top 10 defense company globally, with approximately 48,000 employees and customers in over 100 countries.

For calendar year 2018, the combined company is expected to generate net revenue of approximately $16B, EBIT of $2.4B and free cash flow of $1.9B.

The combination is expected to generate approximately $500M of annual gross pre-tax cost synergies, or $300M net of savings returned to customers, in year 3.

The savings will come from reducing direct and indirect spend, rationalizing footprint, consolidating corporate and segment headquarters, establishing a common shared services platform for IT and finance and reducing other overhead costs.

The company is expected to invest approximately $450M cash to achieve the synergies over the next 3 years.

The combined company will target $3B in free cash flow by year 3, driven by organic growth, cost synergies, working capital improvements and capital expenditure efficiencies. L3 Harris Technologies will be well capitalized with a strong balance sheet and a leverage ratio of 2.2 times net debt to trailing twelve months EBITDA.

The combined company will remain committed to maintaining an investment grade credit rating and a dividend payout consistent with each company’s current practice and deploying excess cash toward share repurchases, including up to $2B in share repurchases in the 12 months post-closing.

L3 Harris Technologies will be headquartered in Melbourne, Florida.

The combined company’s Board of Directors will have 12 members, consisting of six directors from each company. William Brown will serve as chairman and CEO, and Christopher Kubasik will serve as vice chairman, president and COO for the first two years following the closing of the transaction. For the third year, Brown will transition to executive chairman and Kubasik to CEO, after which Kubasik will become chairman and CEO.

The merger is expected to close in mid-calendar year 2019, subject to satisfaction of customary closing conditions, including receipt of regulatory approvals and approval by the shareholders of each company.


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General Dynamics raises CSRA offer to $41.25 per share

General Dynamics raises CSRA offer to $41.25 from $40.75 a cash

CSRA receives $44 a share buyout offer. Stockwinners.com
 General Dynamics raises CSRA offer to $41.25 from $40.75 a cash

General Dynamics (GD) and CSRA (CSRA) announced that they have entered into an amendment to their definitive merger agreement under which General Dynamics will acquire all outstanding shares of CSRA for $41.25 per share in cash, an increase from the prior $40.75 per share offer.

The transaction is now valued at $9.7B, including the assumption of $2.8B in CSRA debt.

In connection with the amended merger agreement, CSRA’s Board of Directors determined that the previously announced unsolicited proposal from CACI International, Inc to acquire CSRA could not reasonably be expected to lead to a Company Superior Proposal.

 General Dynamics raises CSRA offer to $41.25. Stockwinners.com
General Dynamics raises CSRA offer to $41.25 a share

In reaching that determination, CSRA’s Board of Directors took into account various factors, including among others, the value, certainty of value, certainty of closing and speed to closing of the General Dynamics offer, as amended, as compared to the CACI proposal.

CSRA’s Board of Directors recommends that CSRA stockholders tender their shares of CSRA common stock pursuant to the General Dynamics tender offer. Under the terms of the merger agreement, as amended, on March 5, 2018, General Dynamics commenced a cash tender offer to purchase all of the outstanding shares of CSRA common stock.

Today, the offer price was increased from $40.75 per share to $41.25 per share in cash. The tender offer and any withdrawal rights will expire at 11:59 pm, New York City time, on Monday, April 2, 2018, unless extended.

If the tender offer is completed, the parties expect to complete the merger as soon as practicable thereafter. At the effective time of the merger, CSRA will become a wholly owned subsidiary of General Dynamics.


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