Mercury Systems Rockets Past Expectations As Analysts Boost Targets

Mercury Systems, Inc‘s (NASDAQ:MRCY) strong fourth-quarter and full-year fiscal 2025 performance, exceeding market expectations.

• Raymond James analyst Brian Gesuale upgraded the stock to a “Strong Buy” rating, significantly raising the price forecast from $55 to $80.
• JPMorgan analyst Seth Seifman maintained a Neutral rating but raised his price forecast from $56 to $68.
• Truist Securities analyst Michael Ciarmoli kept his Buy rating and increased his price forecast from $60 to $71.
• Baird analyst Peter Arment maintained his Outperform rating, raising his price forecast from $58 to $70.

Strong Q4 Performance and Future Visibility: The company reported a successful fourth quarter, with adjusted EPS of 47 cents on sales of $273.1 million, both beating analyst estimates. This performance was driven by $342 million in quarterly bookings, resulting in a robust book-to-bill ratio of 1.25.

The company’s total backlog now stands at $1.4 billion, a 6% increase year-over-year, providing strong visibility for future revenue streams. Mercury also achieved a record $119 million in free cash flow for the full fiscal year and secured key contract awards, including a $36.9 million award for ground-based radar and a $22 million contract for combat aircraft subsystems.

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Analyst Rationale and Projections: Gesuale’s upgrade is based on three key factors: the company’s exceptional potential for incremental margin growth, increasing revenue visibility from its strong backlog, and its valuation, which has lagged its peers.

The analyst projects a 70% increase in EBITDA margin over the next two years. In light of these factors, Gesuale has revised his financial projections upwards, anticipating FY26 revenue of $944 million, FY27 revenue of $1.072 billion (a “Street high” estimate), and FY27 EBITDA of $202 million.

These projections reflect the company’s own outlook for fiscal year 2026, which anticipates low single-digit revenue growth and a positive free cash flow, building on a year-over-year reduction in net working capital.

The $80 price forecast is not based on historical metrics but rather on a premium valuation justified by the company’s growth prospects. The forecast is based on 4.7x FY27E sales and 25.0x EBITDA, a notable premium compared to Mercury’s five-year averages of 2.9x and 19.0x, respectively.

The analyst argues this premium is justified by the “upside bias” to numbers, strong visibility, and the company’s position to benefit from significant defense spending trends.

Price Action: The share price is up over 25% Tuesday, currently trading at about $67.14 per share.

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