Mercury Systems (MRCY) Stock Forecast & Price Target

Mercury Systems Inc. has demonstrated significant financial improvement, with EBITDA margins increasing by 1,091% year-over-year to reach 13.1%, and free cash flow (FCF) surging 356% year-over-year to $119 million. The company's topline growth is largely attributed to a 31% year-over-year rise in sales of Modules and Sub-assembly products, totaling $246 million for FY25, supported by a steady 11% compound annual growth rate over the last two years. Furthermore, Mercury's increased market presence in the defense electronics sector, driven by strategic inorganic growth, has created opportunities for enhanced margins and overall topline performance.

Mercury Systems Inc has experienced a significant decline in quarterly bookings, contracting at a compound annual growth rate (CAGR) of (9.6%) and reaching approximately $200 million in Q3/25, which has adversely affected its book-to-bill ratio, recorded at 0.95x for the quarter. Additionally, the company's valuation lags behind its small to mid-cap defense peer group, with a consensus EBITDA multiple of 31.5x, falling short by 35.4% compared to the peer group average of 48.8x. Furthermore, consistent lower year-over-year revenue contributions from its SCAR and ADTS segments highlight ongoing challenges within the company's revenue streams.