Assessing Mercury Systems (MRCY) Valuation After A Strong Quarterly Beat And Backlog Growth

Simply Wall St.01-06

Mercury Systems (MRCY) is back in focus after its latest quarter came in ahead of analysts’ expectations, with revenue up 10.2% year on year and additional growth in backlog, adjusted EBITDA, and free...

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See our latest analysis for Mercury Systems. The strong quarterly beat and improved cash generation have been followed by a 4.14% 1 day share price return and a 7.72% 30 day share price return, even though the 90 day share price return is an 8.91% decline and the 5 year total shareholder return is slightly negative. Overall, short term momentum has picked up while longer term returns have been mixed. This may reflect shifting views on Mercury Systems’ growth potential and risk profile after the latest results. If Mercury’s update has you thinking about defense and aerospace names more broadly, it could be a good moment to see what else stands out among aerospace and defense stocks. With the shares up over the past month, a slightly negative 5 year total return and the stock trading about 13% below the average analyst price target of US$86, you have to ask: is there still a buying opportunity here, or is the market already pricing in future growth? AdvertisementMost Popular Narrative Narrative: 11.6% Undervalued The most followed narrative sees Mercury Systems’ fair value at US$86 versus the last close at US$76.03, which sets up a fairly optimistic gap to close.  Ongoing operational improvements, including automation, streamlined processes, and working capital reduction, are driving operating leverage. As low-margin legacy backlog is replaced by new, higher-margin contracts, this is expected to result in sequential margin expansion and an improved earnings trajectory.  Read the complete narrative. Curious what earnings power this assumes once margins recover and backlog rolls over, and what kind of profit multiple that implies for a defense supplier? The narrative leans on steady revenue growth, rising profitability and a valuation multiple usually reserved for companies with very confident long term earnings stories. Result: Fair Value of $86 (UNDERVALUED) Have a read of the narrative in full and understand what's behind the forecasts. However, there are still execution and contract mix risks here, with legacy low margin programs and any defense budget delays both capable of upsetting this optimistic script. Find out about the key risks to this Mercury Systems narrative. Another View: Multiples Paint a Tougher Picture The 11.6% potential upside to US$86 is only one way of looking at Mercury Systems. On a simple P/S of 4.9x, the shares sit above the US Aerospace & Defense industry at 3.5x and well above a fair ratio of 1.7x, which points to valuation risk if sentiment cools. See what the numbers say about this price — find out in our valuation breakdown. NasdaqGS:MRCY P/S Ratio as at Jan 2026 Build Your Own Mercury Systems Narrative If you are not fully on board with these views or prefer to dig into the numbers yourself, you can build your own narrative in just a few minutes, starting with Do it your way. A good starting point is our analysis highlighting 1 key reward investors are optimistic about regarding Mercury Systems. Ready to find your next idea? If Mercury Systems has caught your eye, do not stop here. The same tools that surfaced this story can help you spot other opportunities just as early.  Zero in on potential bargains by scanning these 876 undervalued stocks based on cash flows that may be pricing in more caution than their underlying cash flows suggest. Ride the growth of intelligent automation by screening these 25 AI penny stocks that are building real businesses around artificial intelligence, not just talking about it. Tap into the growing link between medicine and machine learning by reviewing these 29 healthcare AI stocks that are applying AI to diagnostics, drug discovery, and patient care.   This article by Simply Wall St is general in nature. We provide commentary based on historical data\n    and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your\n    financial situation. We aim to bring you long-term focused analysis driven by fundamental data.\n    Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.\n    Simply Wall St has no position in any stocks mentioned.New: Manage All Your Stock Portfolios in One PlaceWe've created the ultimate portfolio companion for stock investors, and it's free.• Connect an unlimited number of Portfolios and see your total in one currency• Be alerted to new Warning Signs or Risks via email or mobile• Track the Fair Value of your stocksTry a Demo Portfolio for FreeHave feedback on this article? Concerned about the content? Get in touch with us directly. 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