What happened
The Centers for Disease Control and Prevention (CDC) has renewed a software agreement with Palantir Technologies (PLTR -0.62%), awarding the tech company a new five-year, $443 million contract. Investors are applauding the deal, sending shares of Palantir up as much as 5% on Wednesday.
So what
Palantir provides data analytics tools for government and commercial customers. The company's focus since going public in late 2020 has been on building out its commercial pipeline, but sales to government customers remain an important part of the business.
The CDC apparently has been pleased with the work Palantir has done for it. On Wednesday, the company announced a new contract to streamline Palantir's work with the agency to improve disease surveillance and better coordinate outbreak responses, among other tasks. For example, Palantir as part of this contract will work to support and implement the CDC's new Center for Forecasting and Outbreak Analytics initiative.
Hirsh Jain, head of federal public health programs at Palantir, in a statement said, "this contract solidifies the important digital advancements in public health made during the pandemic and expands the CDC's capacity to create a sustainable and long-term approach beyond COVID-19."
Now what
The deal is a good example of what Palantir does best: Providing unique analytics tools that are able to accomplish amazing things. But investors shouldn't expect a single contract to be a catalyst for a sustained stock rally.
Palantir investors have endured a wild ride since the company's debut, and although the stock has fallen considerably from its highs it is still priced at more than 8 times sales. That's substantially higher than where most government services companies trade. Booz Allen Hamilton, for example, trades at less than 2 times sales today.
The bull case for Palantir is that the company is much more than a government contractor, and the commercial side of the business, which is growing fast but still remains less than half of total revenue, will in time allow it to justify the higher multiple. That might be the case, but as this contract shows government is still a substantial part of the story for Palantir, and will likely remain that way for the foreseeable future.
