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Mercury Systems Inc (MRCY)
NASDAQ:MRCY
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Mercury Systems (MRCY) AI Stock Analysis

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MRCY

Mercury Systems

(NASDAQ:MRCY)

Rating:58Neutral
Price Target:
$54.00
▲(2.94%Upside)
The overall stock score reflects Mercury Systems' current financial pressures, despite significant improvements in cash flow and adjusted EBITDA as highlighted in the earnings call. The technical indicators suggest positive momentum, though valuation remains a concern with a negative P/E ratio. The most impactful factor is the financial performance, which shows strain due to declining revenue and profitability, affecting the overall score.
Positive Factors
Acquisitions
The acquisition of Star Lab could help further differentiate Mercury’s offering, especially with increased scrutiny on procurement programs around cybersecurity.
Defense Sector
Mercury expects to benefit from spending redirection in the Department of Defense budget to its types of procurement programs.
Earnings
Mercury delivered another solid result with revenue exceeding consensus by $7.6 million.
Negative Factors
Operational Challenges
Confidence has materially improved that the long-dated turnaround story has officially turned the corner with business inflecting and technical risks on challenged programs eliminated.

Mercury Systems (MRCY) vs. SPDR S&P 500 ETF (SPY)

Mercury Systems Business Overview & Revenue Model

Company DescriptionMercury Systems, Inc. (MRCY) is a leader in secure and safety-critical technologies for aerospace and defense applications. The company specializes in providing innovative solutions that include digital signal processing, embedded systems, and secure communications. With a focus on delivering high-performance products, Mercury Systems serves sectors such as defense, intelligence, and commercial aerospace, ensuring the integrity and security of mission-critical systems.
How the Company Makes MoneyMercury Systems generates revenue primarily through the sale of its advanced technology products and solutions to government and commercial customers within the aerospace and defense sectors. The company's key revenue streams include the sale of embedded processing modules, secure communications systems, and other specialized electronic systems that enhance the performance and security of military and aerospace operations. Additionally, Mercury Systems benefits from long-term contracts and partnerships with government agencies and defense contractors, which provide a stable and recurring revenue base. The company also invests in research and development to continually innovate and meet the evolving technological needs of its clients.

Mercury Systems Earnings Call Summary

Earnings Call Date:May 06, 2025
(Q3-2025)
|
% Change Since: 4.07%|
Next Earnings Date:Aug 11, 2025
Earnings Call Sentiment Positive
The earnings call presented a positive picture overall, with significant improvements in free cash flow and adjusted EBITDA, as well as strong revenue and backlog growth. However, there are ongoing challenges with sequential revenue declines due to timing shifts and achieving target EBITDA margins.
Q3-2025 Updates
Positive Updates
Strong Free Cash Flow Performance
Free cash flow for the third quarter was approximately $24 million, compared to an outflow of $26 million in the prior year. Year-to-date free cash flow is $85 million, above previous expectations.
Revenue and Backlog Growth
Revenue for Q3 was $211 million, with a year-to-date growth of 8.9% year-over-year. Backlog increased by 4% year-over-year to $1.34 billion.
Improvement in Adjusted EBITDA
Q3 adjusted EBITDA was $24.7 million, compared to negative $2.4 million in the same quarter last year. Adjusted EBITDA margin improved to 11.7%.
Operational Efficiency
Operating expenses decreased approximately $12 million year-over-year due to actions taken to streamline and focus operations.
Notable Contract Wins
Significant contract awards include $40 million for the common processing architecture and $20 million for the F-35 program.
Negative Updates
Sequential Revenue Decline
Revenue decreased sequentially due to a $29 million pull forward into Q2, leading to a flat year-over-year revenue for Q4.
Adjusted EBITDA Margin Challenge
Q3 adjusted EBITDA margin was 11.7%, which is below the long-term target of low to mid-20% range.
GAAP Net Loss
GAAP net loss for the third quarter was approximately $19 million, compared to a loss of $45 million in the same quarter last year.
Company Guidance
During the Mercury Systems Third Quarter Fiscal 2025 earnings call, guidance was provided on several key financial metrics. The company reported Q3 bookings of $200 million, with a trailing 12-month book-to-bill ratio of 1.1, and revenue of $211 million, reflecting a year-to-date growth of 8.9% year-over-year. The adjusted EBITDA for the quarter was $25 million, with an adjusted EBITDA margin of 11.7%, which marked a significant year-over-year improvement. Free cash flow reached $24 million, up $50 million from the previous year, contributing to a total of $146 million over the past four quarters. Mercury ended Q3 with $270 million in cash. In terms of future expectations, the company anticipates annual revenue growth approaching mid-single digits for FY 2025, with low double-digit adjusted EBITDA margins, and Q4 adjusted EBITDA margins expected to be the highest of the fiscal year, approaching mid-teens.

Mercury Systems Financial Statement Overview

Summary
Mercury Systems is facing financial challenges with declining revenue and profitability, as indicated by a negative net profit margin and declining EBIT margin. While the balance sheet is solid with a reasonable debt level, the negative ROE and overall strained financial health are concerns. Cash flow is improving but remains a challenge.
Income Statement
45
Neutral
Mercury Systems has faced challenges with declining revenue growth and profitability. The TTM (Trailing-Twelve-Months) shows a negative net profit margin of -10.23% and a declining EBIT margin. Gross profit margin stands at 24.32%, indicating operational challenges. The revenue has decreased from previous periods, which is a concern for future profitability.
Balance Sheet
60
Neutral
The balance sheet reflects moderate leverage with a Debt-to-Equity ratio of 0.44, showing a reasonable level of debt. However, the Return on Equity (ROE) is negative, at -6.20%, indicating inefficiencies in generating returns for shareholders. The equity ratio is strong at 60.79%, showing a solid capital structure.
Cash Flow
55
Neutral
Cash flow analysis reveals a recovering free cash flow, showing positive growth. The operating cash flow to net income ratio is not favorable due to negative net income, though operating cash flow is positive. The free cash flow growth rate indicates improvement, but overall cash generation remains a challenge.
BreakdownJun 2024Jun 2023Sep 2022Sep 2021Sep 2020
Income Statement
Total Revenue835.27M973.88M988.20M924.00M796.61M
Gross Profit195.90M316.73M394.96M385.19M356.84M
EBITDA-66.23M73.95M163.89M163.28M144.88M
Net Income-137.64M-28.34M11.28M62.04M85.71M
Balance Sheet
Total Assets2.38B2.39B2.30B1.96B1.61B
Cash, Cash Equivalents and Short-Term Investments180.52M71.56M65.65M113.84M226.84M
Total Debt654.08M578.30M521.39M271.51M66.98M
Total Liabilities906.13M824.68M766.31M470.99M225.94M
Stockholders Equity1.47B1.57B1.54B1.48B1.38B
Cash Flow
Free Cash Flow26.09M-60.05M-46.52M51.65M71.89M
Operating Cash Flow60.38M-21.25M-18.87M97.25M115.18M
Investing Cash Flow-34.29M-38.56M-274.32M-416.89M-135.49M
Financing Cash Flow82.68M65.43M245.75M206.23M-10.93M

Mercury Systems Technical Analysis

Technical Analysis Sentiment
Positive
Last Price52.46
Price Trends
50DMA
50.53
Positive
100DMA
48.32
Positive
200DMA
44.26
Positive
Market Momentum
MACD
0.40
Negative
RSI
54.19
Neutral
STOCH
64.86
Neutral
Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For MRCY, the sentiment is Positive. The current price of 52.46 is above the 20-day moving average (MA) of 51.74, above the 50-day MA of 50.53, and above the 200-day MA of 44.26, indicating a bullish trend. The MACD of 0.40 indicates Negative momentum. The RSI at 54.19 is Neutral, neither overbought nor oversold. The STOCH value of 64.86 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Positive sentiment for MRCY.

Mercury Systems Risk Analysis

Mercury Systems disclosed 30 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

Overall Rating
UnderperformOutperform
Sector (65)
Financial Indicators
Name
Overall Rating
Market Cap
P/E Ratio
ROE
Dividend Yield
Revenue Growth
EPS Growth
75
Outperform
$2.78B231.831.02%19.91%-73.61%
72
Outperform
$9.76B464.451.45%7.32%
68
Neutral
$13.46B176.755.10%14.50%-29.76%
68
Neutral
$2.77B169.024.83%0.30%19.84%-51.67%
65
Neutral
$11.06B15.735.16%1.93%3.12%-25.59%
60
Neutral
$4.87B81.63%-2.91%-109.95%
58
Neutral
$3.16B-4.45%5.66%52.71%
* Industrials Sector Average
Performance Comparison
Ticker
Company Name
Price
Change
% Change
MRCY
Mercury Systems
52.46
17.12
48.44%
AIR
AAR
77.50
10.88
16.33%
AVAV
AeroVironment
271.20
97.38
56.02%
KTOS
Kratos Defense
58.66
36.00
158.87%
SPR
Spirit AeroSystems
40.98
5.41
15.21%
VSEC
VSE
134.08
42.72
46.76%

Mercury Systems Corporate Events

Executive/Board ChangesBusiness Operations and Strategy
Mercury Systems COO Departs for CEO Role Elsewhere
Neutral
Apr 1, 2025

On March 28, 2025, Charles R. Wells, IV, the Executive Vice President and Chief Operating Officer of Mercury Systems, announced his departure to assume a CEO role at a privately held company. Following his departure, William L. Ballhaus, the Chairman and CEO, will oversee business operations, while David E. Farnsworth, the Executive Vice President and CFO, will take on additional responsibilities, including leading a management operating system and overseeing technology investments. In recognition of his expanded role, Mr. Farnsworth will receive a restricted stock unit award valued at $1,000,000, with specific vesting terms tied to his continued service with the company.

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.Date of analysis: Jun 05, 2025