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Mercury Systems Inc (MRCY)
NASDAQ:MRCY
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Mercury Systems
(NASDAQ:MRCY)
61Neutral
Positive Factors
Business Performance
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.
Financial Results
MRCY delivered better-than-expected results and with record free cash flow as Unbilled Receivables continues to decline, providing further confidence MRCY will be back towards its target business model.
Growth Strategy
Management continues to focus on streamlining operations to increase positive operating leverage and return to predictable organic growth and robust free cash flow over time.
Negative Factors
Cash Flow Concerns
The company's free cash flow quality remains extremely weak despite the upgrade to a Hold rating.
Profitability Challenges
The underwhelming 1H25 margins clearly reflect the outsized negative impact on profitability of the investment spending on the 4 programs related to the common processing architecture technology.
Valuation Concerns
The valuation for Mercury Systems requires premium multiples compared to its peers, which presents a challenge.
Mercury Systems (MRCY) vs. S&P 500 (SPY)
Market Cap
$2.66B
Dividend YieldN/A
Average Volume (3M)571.41K
Price to Earnings (P/E)―
Beta (1Y)0.71
Revenue Growth-1.21%
EPS Growth-4.63%
CountryUS
Employees2,364
SectorIndustrials
Sector Strength61
IndustryAerospace & Defense
Share Statistics
EPS (TTM)-1.56
Shares Outstanding59,681,156
10 Day Avg. Volume730,046
30 Day Avg. Volume571,413
Financial Highlights & Ratios
PEG RatioN/A
Price to Book (P/B)N/A
Price to Sales (P/S)3.06
Price to Cash Flow (P/CF)7.90
P/FCF Ratio7.20
Enterprise Value/Market CapN/A
Enterprise Value/RevenueN/A
Enterprise Value/Gross ProfitN/A
Enterprise Value/EbitdaN/A
Forecast
1Y Price Target
$47.33Price Target Upside2.49% Upside
Rating ConsensusModerate Buy
Number of Analyst Covering6
Mercury Systems Business Overview & Revenue Model
Company DescriptionMercury Systems, Inc. is a technology company specializing in secure and safety-critical solutions for the aerospace and defense sectors. The company designs, manufactures, and sells a range of products including secure processing subsystems, ruggedized embedded systems, and sensor processing technologies. These products are integral to modern defense systems, supporting applications in radar, electronic warfare, and intelligence, surveillance, and reconnaissance (ISR) operations.
How the Company Makes MoneyMercury Systems generates revenue primarily through the sale of its technology solutions to prime defense contractors and government agencies. Its revenue streams include product sales, which encompass secure embedded systems and components, and services, such as engineering and support services tailored to customer requirements. The company benefits from long-term contracts and partnerships with major defense industry players, leveraging its expertise in secure processing and open architecture systems to maintain a steady flow of income. Additionally, Mercury Systems focuses on innovation and strategic acquisitions to enhance its product offerings and market reach, thereby contributing to its financial performance.
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
46.18
Price Trends
44.31
Positive
42.52
Positive
38.90
Positive
Market Momentum
-0.01
Positive
45.97
Neutral
22.76
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 46.18 is above the 20-day moving average (MA) of 44.73, above the 50-day MA of 44.31, and above the 200-day MA of 38.90, indicating a bullish trend. The MACD of -0.01 indicates Positive momentum. The RSI at 45.97 is Neutral, neither overbought nor oversold. The STOCH value of 22.76 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 29 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 (62)
Financial Indicators
Name | Overall Rating | Market Cap | P/E Ratio | ROE | Dividend Yield | Revenue Growth | EPS Growth |
|---|---|---|---|---|---|---|---|
69 Neutral | $2.42B | 68.83 | 4.55% | 0.34% | 16.48% | -70.34% | |
62 Neutral | $7.68B | 13.06 | 3.21% | 3.34% | 3.62% | -14.40% | |
61 Neutral | $2.66B | ― | -6.10% | ― | -1.21% | -4.63% | |
59 Neutral | $4.88B | 297.47 | 1.40% | ― | 9.57% | ― | |
58 Neutral | $3.89B | 118.88 | 3.94% | ― | 5.21% | ― | |
57 Neutral | $1.96B | 246.75 | -1.08% | ― | 21.07% | -120.95% | |
40 Underperform | $3.89B | ― | 81.63% | ― | 4.44% | -202.63% |
* Industrials Sector Average
Performance Comparison
MRCY
Mercury Systems
44.75
15.98
55.54%
AIR
AAR
53.39
-7.40
-12.17%
AVAV
AeroVironment
146.33
-0.79
-0.54%
KTOS
Kratos Defense
31.71
13.50
74.14%
SPR
Spirit AeroSystems
32.86
-1.41
-4.11%
VSEC
VSE
112.44
34.65
44.54%
Mercury Systems Earnings Call Summary
Earnings Call Date: Feb 4, 2025 | % Change Since: 9.72% | Next Earnings Date: May 6, 2025
Earnings Call Sentiment Neutral
The earnings call for Mercury Systems highlighted significant improvements in revenue, backlog, and free cash flow, alongside operational efficiencies. However, challenges remain in the form of lower-than-expected backlog margins and limited free cash flow projections for the second half of the year. While the company sees strong future demand and operational improvements, achieving higher profitability remains a work in progress.Highlights
Strong Quarterly Performance
Revenue of $223 million, up 13% year-over-year. Adjusted EBITDA of $22 million, with a margin of 9.9%, both showing substantial improvement compared to the previous year. Record free cash flow of $82 million, demonstrating significant cash generation.
Record Backlog
Record backlog of $1.4 billion, showcasing strong future demand and business sustainability.
Operational Efficiency Gains
Net working capital decreased by $115 million year-over-year, or 19.5%, signifying improved operational efficiency and better cash flow management.
Successful Competitive Wins
Notable wins include development contracts from a US defense prime and a $24.5 million satellite program, indicating strong market position and technical differentiation.
Lowlights
Low Backlog Margin
Current backlog margin is lower than desired due to low-margin development programs and adverse impacts from previous fiscal year programs.
Limited Free Cash Flow Projection for H2
Despite strong cash flow in Q2, the second half of the fiscal year is expected to be around breakeven in terms of free cash flow.
Company Guidance
During the Mercury Systems second-quarter fiscal 2025 conference call, the company provided guidance emphasizing solid results and strategic priorities. Key metrics included bookings of $242 million, a trailing book-to-bill ratio of 1.12, and revenue of $223 million, marking a 13% year-over-year increase. The adjusted EBITDA was $22 million with a margin of 9.9%, both showing substantial improvement from the previous year. Mercury Systems also reported a record free cash flow of $82 million, an increase of $44 million year-over-year, and ended the quarter with $243 million in cash on hand. The backlog reached a record $1.4 billion, while net working capital decreased by $115 million, or 19.5% year-over-year. The company anticipates revenue growth approaching mid-single digits for the full fiscal year and continues to target adjusted EBITDA margins in the low to mid-20% range in the future.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.