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Mercury Systems Inc (MRCY)
NASDAQ:MRCY
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Mercury Systems
(NASDAQ:MRCY)
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Rating:55Neutral
Price Target:
$79.00
▲(2.44% Upside)
The score is held back primarily by weak profitability and poor near-term technicals (price below key moving averages). These are partially offset by solid cash generation and a constructive earnings call featuring strong bookings/backlog and improving adjusted EBITDA, but negative earnings and negative P/E keep the overall profile mid-range.
Positive Factors
Backlog & Bookings
A $1.5B backlog and book-to-bill >1 provide durable multi-quarter revenue visibility and buffer against single-quarter volatility. Strong bookings signal sustained demand from defense primes, supporting production ramps, capacity planning, and recurring program revenue over the next 2–6 months and beyond.
Cash Generation
Consistent positive operating and free cash flow and a sizable cash balance strengthen liquidity and financing optionality. This durable cash generation funds working capital, sustains program delivery, reduces reliance on external financing, and enables reinvestment or deleveraging over medium term.
Adjusted EBITDA & Margin Trajectory
Meaningful year-over-year adjusted EBITDA expansion reflects operational leverage and execution on cost structure. A credible margin improvement trend creates a plausible path toward management's longer-term low-to-mid-20s targets, improving cash conversion and long-run earnings resilience.
Negative Factors
GAAP Losses & Negative Returns
Persisting GAAP losses and negative ROE indicate the company has not yet translated operational gains into positive shareholder returns. Until GAAP profitability is sustained, equity value creation remains constrained and balance sheet improvement may be slower despite cash generation.
Low‑Margin Backlog & Gross Margin Pressure
A material portion of backlog is lower-margin and management expects it to persist, which structurally compresses near-term gross and operating margins. This mix effect can delay achievement of long-term margin targets and limit earnings leverage even if revenue growth continues.
Free Cash Flow Volatility & Timing Risk
While FCF is positive on a TTM basis, recent year-over-year decline and an expected Q3 outflow highlight timing sensitivity. Reliance on revenue pull-forwards and variable receipts raises uncertainty in funding cycles and capital allocation decisions over the next several quarters.
Mercury Systems (MRCY) vs. SPDR S&P 500 ETF (SPY)
Market Cap
$4.63B
Dividend YieldN/A
Average Volume (3M)590.69K
Price to Earnings (P/E)―
Beta (1Y)0.98
Revenue Growth8.63%
EPS Growth72.72%
CountryUS
Employees2,364
SectorIndustrials
Sector Strength72
IndustryAerospace & Defense
Share Statistics
EPS (TTM)0.16
Shares Outstanding60,100,136
10 Day Avg. Volume642,473
30 Day Avg. Volume590,694
Financial Highlights & Ratios
PEG Ratio1.14
Price to Book (P/B)2.13
Price to Sales (P/S)3.44
P/FCF Ratio26.36
Enterprise Value/Market Cap1.07
Enterprise Value/Revenue5.65
Enterprise Value/Gross Profit20.93
Enterprise Value/Ebitda510.29
Forecast
1Y Price Target
$94.00Price Target Upside21.89% Upside
Rating ConsensusModerate Buy
Number of Analyst Covering6
EPS Forecast (FY)N/A
Revenue Forecast (FY)N/A
Mercury Systems Business Overview & Revenue Model
Company DescriptionMercury Systems, Inc., a technology company, manufactures and sells components, products, modules, and subsystems for aerospace and defense industries in the United States, Europe, and the Asia Pacific. Its products and solutions are deployed in approximately 300 programs with 25 defense contractors and commercial aviation customers. The company offers components, including power amplifiers and limiters, switches, oscillators, filters, equalizers, digital and analog converters, chips, monolithic microwave integrated circuits, and memory and storage devices; modules and sub-assemblies, such as embedded processing modules and boards, switched fabric boards, digital receiver boards, multi-chip modules, integrated radio frequency and microwave multi-function assemblies, tuners, and transceivers, as well as graphics and video processing, and Ethernet and input-output boards; and integrated subsystems. It also designs and develops digital radio frequency memory units for various modern electronic warfare applications; radar environment simulation and test systems for defense and intelligence applications; and signals intelligence payloads and EO/IR technologies for small UAV platforms, as well as onboard UAV processor systems for real-time wide area motion imagery. The company was formerly known as Mercury Computer Systems, Inc. and changed its name to Mercury Systems, Inc. in November 2012. Mercury Systems, Inc. was incorporated in 1981 and is headquartered in Andover, Massachusetts.
How the Company Makes MoneyMercury Systems generates revenue primarily through the sale of its electronic systems and related services to government and commercial customers in the aerospace and defense sectors. Key revenue streams include product sales, which consist of hardware and software solutions, as well as engineering services, which support the customization and integration of its technologies into customer systems. Additionally, the company benefits from long-term contracts and partnerships with defense agencies and prime contractors, which provide a steady flow of revenue. Significant collaborations with other technology firms and defense contractors also contribute to its earnings by expanding its market reach and enhancing its product offerings.
Mercury Systems Key Performance Indicators (KPIs)
Mercury Systems Earnings Call Summary
Earnings Call Date:Feb 03, 2026
(Q2-2026)
| % Change Since: |
Next Earnings Date:May 05, 2026
Earnings Call Sentiment Positive
The call emphasized strong operational execution and tangible progress: robust bookings, record backlog, revenue growth, significant adjusted EBITDA improvement, positive free cash flow, cash and leverage reduction, and strategic design wins. Headwinds are transitional and largely related to mix (conversion of lower-margin backlog), near-term gross margin compression, Q3 seasonality/expected cash outflow due to pulled-forward receipts, and some one-time or near-term charges (restructuring, litigation). Management signaled confidence in margin expansion over time and potential demand tailwinds (Golden Dome, increased defense budgets) but remained appropriately cautious about assuming further quarter-to-quarter accelerations. On balance the positives (bookings, backlog growth, EBITDA gain, cash and working capital improvement, and execution wins) outweigh the manageable near-term challenges.Q2-2026 Updates
Positive Updates
Strong Bookings and Backlog Growth
Bookings of $288M in Q2 with a book-to-bill of 1.23; record backlog approaching $1.5B, up $119M or 8.8% year-over-year.
Revenue Growth and Record First-Half Performance
Q2 revenue of $233M (up ~$10M or 4.4% YoY) and first-half revenue up 7.1% year-over-year; company reported the highest first-half point-in-time revenue since FY2021.
Material Adjusted EBITDA Improvement
Adjusted EBITDA of $30M in Q2, up 36.3% year-over-year, with adjusted EBITDA margin of 12.9% (up 300 basis points YoY).
Positive Free Cash Flow and Strong Cash Position
Q2 free cash flow inflow of ~$46M (vs. $82M prior year), $335M cash on hand at quarter end, and $41M positive free cash flow over the last two quarters.
Working Capital and Leverage Reduction
Net working capital down ~$61M year-over-year (down ~12.9%) to ~ $414M (lowest since Q1 FY2022); net debt reduced to ~$257M (lowest level in the referenced period).
Execution—Revenue Acceleration and Program Delivery
Accelerated ~ $30M of revenue (primarily planned for Q3) into Q2, contributing roughly $10M of adjusted EBITDA and ~$30M of cash; ongoing ramp and production progress on common processing architecture (CPA) programs.
Business Development and Strategic Wins
Q2 bookings included franchise program expansions, two key design wins (RF/processing subsystem for AAM ground control and a space-based design win), and ~$20M of follow-on CPA awards leveraging StarLab cybersecurity capabilities.
Negative Updates
Gross Margin Compression
Gross margin decreased to 26% in Q2 (down ~130 basis points YoY) driven by conversion of a higher mix of lower-margin backlog in the quarter.
Adjusted EBITDA Margin Below Long-Term Target
Despite improvement, adjusted EBITDA margin is 12.9% in Q2 versus the company's long-term target in the low-to-mid 20% range; company expects Q3 margin to approach double digits and Q4 to be highest of the year.
Remaining Low-Margin Backlog
Management noted a remaining distribution of lower-margin backlog that may persist through FY2027 as it is burned down, which weighs on near-term average backlog margins.
GAAP Loss and Lower Quarterly Free Cash Flow vs Prior Year
GAAP net loss of approximately $15M (EPS -$0.26) in Q2 (improved vs prior-year loss of ~$18M); Q2 free cash flow of ~$46M was below prior-year $82M, and Q3 is expected to be a free cash outflow due to pulled-forward receipts.
Operational Charges and Litigation Costs
Restructuring and other charges increased by ~$4M in the quarter; SG&A increased ~ $2M year-over-year primarily related to litigation and settlement costs; prepaid assets increased ~$46M tied to settlement receivable.
Revenue Seasonality and Near-Term Guidance Caution
Management maintained full-year guidance (low-single-digit revenue growth) but noted Q3 revenue is expected to be down year-over-year absent further accelerations, reflecting sensitivity to timing of material and deliveries.
Supply/Timing Uncertainty for Accelerations
Ability to consistently accelerate deliveries depends on supplier/material timing (kits/material must be on hand); management is cautious and does not bake repeat accelerations into guidance despite prior quarter pull-forwards.
Company Guidance
Mercury reiterated its FY‑2026 guidance while highlighting substantial Q2 outperformance and a ~$30M revenue/cash pull‑forward into Q2: Q2 bookings were $288M (book‑to‑bill 1.23; aggregate YTD book‑to‑bill 1.17), revenue $233M (1H revenue +7.1% YoY; record first‑half and highest point‑in‑time revenue since FY2021), backlog ~ $1.5B (up $119M, +8.8% YoY), adjusted EBITDA $30M (adj. EBITDA margin 12.9%, up 36.3% YoY; 1H adj. EBITDA margin 14.3% and 400 bps YoY expansion), gross margin 26% (down ~130 bps YoY), adjusted EPS $0.16 (vs. $0.07 prior year), GAAP net loss ~$15M (loss per share ~$0.26), Q2 free cash flow +$46M (≈$41M positive FCF over the last two quarters), cash balance $335M, net working capital ≈$414M (down ~$61M YoY, ~‑12.9%), and net debt ~$257M; the company still expects full‑year revenue growth of low single digits, full‑year adjusted EBITDA margin approaching mid‑teens with Q3 adj. EBITDA margin approaching double‑digits and Q4 the strongest, a Q3 free cash outflow (after the Q2 pull‑forward) but positive free cash flow for the year, and longer‑term targets of low‑to‑mid‑20s adj. EBITDA margins and ~50% free cash flow conversion.Mercury Systems Financial Statement Overview
Summary
Cash flow is a key support (TTM operating cash flow ~$122M and free cash flow ~$99M), and leverage appears manageable (debt-to-equity ~0.44). However, profitability remains the main drag with negative operating (~-6%) and net margins (~-8%) despite improvement versus 2024.Income Statement
TTM (Trailing-Twelve-Months) revenue is essentially flat-to-slightly up versus the last annual period, but profitability remains weak: gross margin is ~27% while operating results are still negative (operating margin ~-6%) and net margin is ~-8%. The company has improved materially from 2024’s steep losses (net margin ~-16%), but it has not yet returned to sustained profitability seen earlier in the cycle (e.g., 2021 positive net income and stronger margins). Overall: improving trajectory off the 2024 trough, but earnings quality is still a clear headwind.38
Negative
Balance Sheet
Leverage looks manageable for the industry, with debt-to-equity around 0.44 in TTM (Trailing-Twelve-Months) and equity of roughly $1.46B supporting a ~$2.50B asset base. However, returns are currently negative (TTM return on equity ~-4.7%) due to ongoing net losses. Overall: capital structure appears stable with moderate leverage, but the balance sheet is not translating into shareholder returns until profitability improves.62
Positive
Cash Flow
Cash generation is a relative bright spot: TTM (Trailing-Twelve-Months) operating cash flow is ~$122M and free cash flow is ~$99M, both solidly positive despite net losses. That said, free cash flow is down sharply versus the prior annual period (free cash flow growth ~-39%), and cash flow is not fully keeping pace with accounting losses (free cash flow is slightly below the magnitude of net loss). Overall: good underlying cash generation, but volatility and the recent decline temper the strength.66
Positive
| Breakdown | Dec 2025 | Dec 2024 | Dec 2023 | Dec 2022 | Dec 2021 |
|---|---|---|---|---|---|
Income Statement | |||||
| Total Revenue | 912.02M | 835.27M | 973.88M | 973.88M | 924.00M |
| Gross Profit | 254.49M | 195.90M | 316.73M | 316.73M | 385.19M |
| EBITDA | 65.03M | -66.23M | 73.95M | 73.95M | 163.28M |
| Net Income | -37.90M | -137.64M | -28.34M | -28.34M | 62.04M |
Balance Sheet | |||||
| Total Assets | 2.43B | 2.38B | 2.39B | 2.30B | 1.96B |
| Cash, Cash Equivalents and Short-Term Investments | 309.10M | 180.52M | 71.56M | 65.65M | 113.84M |
| Total Debt | 644.24M | 654.08M | 578.30M | 521.39M | 281.53M |
| Total Liabilities | 961.30M | 906.13M | 824.68M | 767.23M | 470.99M |
| Stockholders Equity | 1.47B | 1.47B | 1.57B | 1.54B | 1.48B |
Cash Flow | |||||
| Free Cash Flow | 119.05M | 119.05M | 26.09M | -60.05M | -46.52M |
| Operating Cash Flow | 138.85M | 138.85M | 60.38M | -21.25M | -18.87M |
| Investing Cash Flow | -13.50M | -13.50M | -34.29M | -38.56M | -274.32M |
| Financing Cash Flow | 1.41M | 1.41M | 82.68M | 65.43M | 245.75M |
Mercury Systems Technical Analysis
Negative
77.12
Price Trends
81.99
Negative
79.03
Negative
66.70
Positive
Market Momentum
2.65
Positive
35.15
Neutral
33.81
Neutral
Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For MRCY, the sentiment is Negative. The current price of 77.12 is below the 20-day moving average (MA) of 96.27, below the 50-day MA of 81.99, and above the 200-day MA of 66.70, indicating a neutral trend. The MACD of 2.65 indicates Positive momentum. The RSI at 35.15 is Neutral, neither overbought nor oversold. The STOCH value of 33.81 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for MRCY.
Mercury Systems Risk Analysis
Mercury Systems disclosed 31 risk factors in its most recent earnings report. Mercury Systems reported the most risks in the "Finance & Corporate" category.
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
Latest Risks Added 0 New Risks
Mercury Systems Peers Comparison
UnderperformOutperform
Sector (63)
Name | Overall Rating | Market Cap | P/E Ratio | ROE | Dividend Yield | Revenue Growth | EPS Growth |
|---|---|---|---|---|---|---|---|
74 Outperform | $10.24B | 40.07 | 13.33% | 0.46% | 7.11% | 13.43% | |
74 Outperform | $8.88B | 27.16 | 1.47% | ― | ― | ― | |
64 Neutral | $6.57B | 60.58 | 7.87% | 0.89% | -0.37% | -34.97% | |
63 Neutral | $10.79B | 15.43 | 7.44% | 2.01% | 2.89% | -14.66% | |
61 Neutral | $12.85B | -205.18 | -2.64% | ― | 79.89% | -171.81% | |
55 Neutral | $4.63B | -149.23 | -2.24% | ― | 8.63% | 72.72% |
* Industrials Sector Average
MRCY
Mercury Systems
77.12
27.24
54.61%
AVAV
AeroVironment
257.30
71.34
38.36%
HXL
Hexcel
82.54
19.08
30.07%
MOG.A
Moog
322.03
129.83
67.55%
AMTM
Amentum Holdings, Inc.
36.45
13.77
60.71%
Glossary
BuyA stock rated as a "Buy" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock is likely to deliver higher returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
HoldA stock rated as a "Hold" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly compelling nor unfavorable for investment. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
SellA stock rated as a "Sell" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock may deliver lower returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
Disclaimer
This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.