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Mercury Systems Inc (MRCY)
NASDAQ:MRCY
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Mercury Systems
(NASDAQ:MRCY)
Rating:59Neutral
Price Target:
$50.00
▲( 5.93% Upside)
Positive Factors
Financial Performance
Mercury delivered another solid result with revenue exceeding consensus by $7.6 million.
Growth Strategy
The shift in bookings from development to production is seen as a meaningful driver to reaccelerate growth and drive operating leverage.
Market Position
Investors should consider owning Mercury as a clear play on defense modernization due to its critical role as a technology enabler for multiple platforms.
Negative Factors
Risk Management
Technical risks on challenged programs have been a concern, although confidence has improved that these issues are being resolved.
Sector Dependency
Mercury's performance is heavily influenced by its involvement in defense electronics, making it reliant on government spending and defense budgets.
Mercury Systems (MRCY) vs. SPDR S&P 500 ETF (SPY)
Market Cap
$2.82B
Dividend YieldN/A
Average Volume (3M)545.16K
Price to Earnings (P/E)―
Beta (1Y)0.64
Revenue Growth5.66%
EPS Growth52.71%
CountryUS
Employees2,364
SectorIndustrials
Sector Strength92
IndustryAerospace & Defense
Share Statistics
EPS (TTM)0.06
Shares Outstanding59,754,960
10 Day Avg. Volume548,555
30 Day Avg. Volume545,159
Financial Highlights & Ratios
PEG Ratio-1.16
Price to Book (P/B)1.72
Price to Sales (P/S)0.00
P/FCF Ratio26.43
Enterprise Value/Market CapN/A
Enterprise Value/RevenueN/A
Enterprise Value/Gross ProfitN/A
Enterprise Value/EbitdaN/A
Forecast
1Y Price Target
$53.67Price Target Upside13.71% Upside
Rating ConsensusStrong Buy
Number of Analyst Covering4
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 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 Financial Statement Overview
Summary
Mercury Systems is experiencing financial pressure due to declining revenues and profitability, as reflected in its income statement. While the balance sheet remains solid with a reasonable debt level and equity ratio, the lack of profitability and negative ROE are significant concerns. Cash flow improvements are noted, but overall financial health is strained, necessitating strategic adjustments to address revenue and profit challenges.Income Statement
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.45
Neutral
Balance Sheet
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.60
Neutral
Cash Flow
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.55
Neutral
| Breakdown | |||||
| TTM | Jun 2024 | Jun 2023 | Sep 2022 | Sep 2021 | Sep 2020 |
|---|---|---|---|---|---|
| Income Statement | Total Revenue | ||||
| 884.38M | 835.27M | 973.88M | 988.20M | 924.00M | 796.61M | Gross Profit |
| 215.16M | 195.90M | 316.73M | 394.96M | 385.19M | 356.84M | EBIT |
| -72.37M | -147.75M | -21.68M | 63.07M | 81.00M | 91.06M | EBITDA |
| -2.14M | -66.23M | 73.95M | 163.89M | 163.28M | 144.88M | Net Income Common Stockholders |
| -90.45M | -137.64M | -28.34M | 11.28M | 62.04M | 85.71M |
| Balance Sheet | Cash, Cash Equivalents and Short-Term Investments | ||||
| 92.88M | 180.52M | 71.56M | 65.65M | 113.84M | 226.84M | Total Assets |
| 225.37M | 2.38B | 2.39B | 2.30B | 1.96B | 1.61B | Total Debt |
| 24.98M | 654.08M | 578.30M | 521.39M | 271.51M | 66.98M | Net Debt |
| -33.84M | 473.56M | 506.73M | 455.73M | 157.67M | -159.86M | Total Liabilities |
| 66.80M | 906.13M | 824.68M | 766.31M | 470.99M | 225.94M | Stockholders Equity |
| 158.56M | 1.47B | 1.57B | 1.54B | 1.48B | 1.38B |
| Cash Flow | Free Cash Flow | ||||
| 96.68M | 26.09M | -60.05M | -46.52M | 51.65M | 71.89M | Operating Cash Flow |
| 124.76M | 60.38M | -21.25M | -18.87M | 97.25M | 115.18M | Investing Cash Flow |
| -26.18M | -34.29M | -38.56M | -274.32M | -416.89M | -135.49M | Financing Cash Flow |
| -24.29M | 82.68M | 65.43M | 245.75M | 206.23M | -10.93M |
Mercury Systems Technical Analysis
Positive
47.20
Price Trends
46.67
Positive
45.02
Positive
41.32
Positive
Market Momentum
-0.09
Positive
50.14
Neutral
69.21
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 47.2 is below the 20-day moving average (MA) of 47.95, above the 50-day MA of 46.67, and above the 200-day MA of 41.32, indicating a neutral trend. The MACD of -0.09 indicates Positive momentum. The RSI at 50.14 is Neutral, neither overbought nor oversold. The STOCH value of 69.21 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 1 New Risks
1.
Q4, 2024
Mercury Systems Peers Comparison
Overall Rating
UnderperformOutperform
Sector (64)
Financial Indicators
Name | Overall Rating | Market Cap | P/E Ratio | ROE | Dividend Yield | Revenue Growth | EPS Growth |
|---|---|---|---|---|---|---|---|
74 Outperform | $2.62B | 160.00 | 4.83% | 0.32% | 19.84% | -51.67% | |
72 Outperform | $7.72B | 144.63 | 3.94% | ― | 5.21% | ― | |
71 Outperform | $2.17B | 246.75 | -1.08% | ― | 21.07% | -120.95% | |
71 Outperform | $5.53B | 285.11 | 1.45% | ― | 7.32% | ― | |
64 Neutral | $4.39B | 11.81 | 5.20% | 249.38% | 3.96% | -12.36% | |
59 Neutral | $2.82B | ― | -4.45% | ― | 5.66% | 52.71% | |
37 Underperform | $4.37B | ― | 81.63% | ― | -2.91% | -109.95% |
* Industrials Sector Average
Performance Comparison
MRCY
Mercury Systems
47.20
16.02
51.38%
AIR
AAR
59.76
-11.57
-16.22%
AVAV
AeroVironment
169.07
-30.70
-15.37%
KTOS
Kratos Defense
36.01
14.47
67.18%
SPR
Spirit AeroSystems
37.12
6.04
19.43%
VSEC
VSE
126.68
48.66
62.37%
Mercury Systems Earnings Call Summary
Earnings Call Date:May 06, 2025
(Q3-2025)
| % Change Since: -6.37%|
Next Earnings Date:Aug 05, 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 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
OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.
NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.
UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.
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.