Palantir Technologies (NYSE:PLTR) recently announced that the U.S. Army signed an $823 million intelligence system contract. This could be a good catalyst to help PLTR stock move higher.

This is a milestone for the company, as Palantir is forecast to make $1.5 billion this year. The point is this multi-year contract alone could have a significant impact on the company over the next several years.

I suspect that once the market gets more information on this deal, as well as Palantir’s upcoming financials, PLTR stock could turn around.

For example, after peaking at $39 on Jan. 27, the stock hit a low of $18.37 as of May 13. But it recently rebounded to a high of $28.71 on Sept. 17. Since then, it has settled around $25.06 as of Oct. 27. This gives it a market cap of $49.63 billion.

Where Things Stand at Palantir

I suspect Palantir wins all kinds of contracts without ever announcing them publicly. That is why this announcement on Oct. 5 was so significant. As one Seeking Alpha analyst put it, the deal will likely be over several years and also signifies that the company has a fairly significant government clearance.

The contract announced that Palantir has been selected by the U.S. Army’s Program Manager for Intelligence Systems and Analytics. The Army loves long names for its various programs and divisions.

For context, I once worked as a summer intern for a U.S. Army statistical command group that was responsible for analyzing its Patriot missiles. I was overwhelmed with the number of acronyms that the Army used for everything.

Later in my career, I worked in the Pentagon and had high-level clearance in the Office of the Secretary of Defense (OSD). I can attest that the U.S. government, specifically the Department of Defense, can benefit from a company like Palantir that offers fresh eyes and ears in the intelligence and analysis arena.

This contract specifically chooses Palantir “to progress to the next phase of the Army’s competitive $823m indefinite delivery, indefinite quantity (IDIQ) contract.” This is what I was talking about with acronyms. It also said this:

“After collaborating with the Army on a successful “Test, Fix, Test” process, Palantir will support the Army as they proceed through final testing and fielding.”

From what I can tell in that gobbledygook, Palantir is on the inside track for a contract. It must mean that the deal is worth something big to Palantir.

What to Do With PLTR Stock

At this point, it is a little difficult to say exactly how the $823 million contract will affect Palantir’s sales over the next several years. The best way to assess it is to rely on Street analysts, who will incorporate it into their projections for the company’s revenue and free cash flow.

Last month I wrote that Palantir is now producing positive free cash flow (FCF). The company generated $201 million in FCF during the first half of the year, reflecting a 28% FCF margin. Based on this, I theorized that PLTR stock was worth around $34 per share.

This was based on $1.95 billion in revenue for 2022 and $2.5 billion for 2023. So, using a 30% margin results in a forecast of $750 million in FCF for 2023.

Next, using a 1% FCF yield results in a potential market cap of $75 billion. Compared to yesterday’s market cap of $49.63 billion, that implies that Palantir’s market value is worth 51.1% more than today’s price.

That implies PLTR stock is worth $37.87 per share, or 51.1% higher than its price of $25.06 on Oct. 27.

That is a pretty good ROI for most investors, even if it might be another two years before the stock reaches that level. If it does, the compound average return works out to 22.9% annually for the next two years. That is also a very good potential return for most investors.

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