Mercury Systems (MRCY) Stock Forecast & Price Target

Mercury Systems Inc has demonstrated a remarkable financial performance characterized by a significant year-over-year increase in EBITDA margins of 1,091%, reaching 13.1%, alongside a substantial rise in free cash flow, which surged 356% year-over-year to $119 million. This robust growth is primarily attributed to a notable 31% year-over-year increase in sales of Modules and Sub-assembly products, totaling $246 million in FY25, indicating a healthy expansion within a product segment that has maintained an approximate 11% two-year compound annual growth rate (CAGR). Additionally, Mercury's strategic growth through acquisitions has enhanced its market presence in the defense electronics sector, offering potential for further margin expansion and overall financial growth.

Mercury Systems Inc. has experienced a significant decline in quarterly bookings, with a compound annual growth rate (CAGR) of -9.6%, dropping to approximately $200 million in Q3/25, which has adversely affected its book-to-bill (B2B) ratio, recorded at 0.95x for the quarter. Furthermore, the company's valuation falls short of its SMID cap defense peer group, lagging by 35.4% with a consensus EBITDA multiple of just 31.5x compared to the group's 48.8x. Additionally, revenue contributions from key segments SCAR and ADTS have shown a year-over-year decline, further exacerbating concerns about the company's growth potential.