Mercury Systems (MRCY) Stock Forecast & Price Target

Mercury Systems Inc has reported a significant increase in financial performance, highlighted by a remarkable 1,091% year-over-year rise in EBITDA margins to 13.1% and a 356% increase in free cash flow to $119 million. This resurgence in topline growth was primarily driven by a 31% year-over-year increase in sales of Modules and Sub-assembly products, reaching $246 million in FY25, with this product segment exhibiting an approximately 11% compound annual growth rate over the past two years. The expansion of Mercury's share-of-wallet footprint in the defense electronics market, facilitated by inorganic growth strategies, has not only improved margins but also paved the way for continued revenue growth, signifying a strong financial outlook for the company.

Mercury Systems Inc. has experienced a significant decline in quarterly bookings, which contracted at a compounded annual growth rate (CAGR) of 9.6% over the two-year period leading up to Q3/25, resulting in approximately $200 million in bookings and a concerning book-to-bill ratio of 0.95x during the same quarter. Additionally, the company's valuation falls short of its small- to mid-cap defense peers, lagging by 35.4% with a consensus EBITDA multiple of 31.5x for FY26, compared to the peer average of 48.8x. Furthermore, the revenue contributions from key segments SCAR and ADTS have shown a year-over-year decrease, exacerbating concerns regarding overall financial performance and growth potential.