MRCY Stock Forecast: Mercury Stock to Post Double-Digit Returns

MRCY Stock Forecast
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MRCY Stock Is Riding High on Rising Defense Budgets

With global tensions and threats on the rise, defense budgets are going up in many geographic regions. Although it may not be good for peacemaking efforts, spending on advanced weapons is unlikely to come down any time soon. This is what keeps interest in defense companies high.

One such company is Mercury Systems Inc (NASDAQ:MRCY), which builds advanced defense electronics. Its products and services have been deployed in more than 300 programs and with more than 25 defense prime contractors. The company supports its clients’ critical defense and intelligence programs.

As the industry’s technological needs change, Mercury Systems is well positioned to benefit from these changes. This bodes well for Mercury Systems stock.

Mercury Systems serves the U.S. Department of Defense (DoD) and foreign militaries with unmanned aerial vehicles (UAVs), ballistic missile defense, guided missiles, precision munitions, airborne reconnaissance, electronic warfare (EW), etc.

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The company has secured positions in mission-critical programs including the “F-35 Joint Strike Fighter,” the “Patriot” missile, and many more. Not only this, but the company continues to grow through acquisitions that have led to its participation in an even broader array of programs.

There are a number of developing trends that are reshaping the target markets of the company. This provides attractive growth opportunities for MRCY stock.

The company’s latest annual report says that the aerospace and defense electronics market is expected to grow. It mentions research by Renaissance Strategic Advisors, which says that the global aerospace and defense electronics market was estimated to be $103.0 billion in 2018, growing to $117.0 billion by 2022. (Source: “2018 Annual Report,” Mercury Systems Inc, last accessed January 17, 2019.)

Renaissance Strategic Advisors estimated that the U.S. defense electronics market would be about $51.0 billion in 2018, and that it will likely grow to $57.0 billion in 2022.

Moreover, the DoD is focused on upgrading its electronic subsystems, which means more opportunities for Mercury Systems and more upside for MRCY stock.

Business has been improving for the company, which is reflected in Mercury Systems Inc’s financial performance. The company’s revenue growth continues to be in the double-digits, as shown in the table below:

Fiscal Year 2014 2015 2016 2017 2018
Revenue (Millions) $208.7 $234.9 $270.2 $408.6 $493.2
Growth 12.4% 14.8% 51.4% 20.5%

(Source: “Annual Reports,” Mercury Systems Inc, last accessed January 17, 2019.)

Mercury announced its 2019 first-quarter results recently. It reported revenue of $144.1 million, an increase of 36% over the previous year.

The company’s president and CEO, Mark Aslett, said that the first quarter marked a strong start to the year.

We achieved another record for bookings and backlog, exceeded consensus estimates for revenue, adjusted EBITDA, and adjusted EPS as well as delivered solid operating and free cash flow.

(Source: “Mercury Systems Reports First Quarter Fiscal 2019 Results,” Mercury Systems Inc, October 30, 2018.)

Mercury is also raising its guidance for the full fiscal year, given the financial results and strong momentum in its organic and acquired businesses.

Mercury Systems stock is down about six percent over the last year. However, it has had a phenomenal run over the last three years, going up by a stellar 180%. MRCY stock has gained about 40% since we last covered it in Profit Confidential in May 2018.

Mercury-Stock-Graph-chart

Chart courtesy of StockCharts.com

It has been an uneven ride for the stock over the last year, but given the expanding market and opportunities, Mercury Systems stock will likely continue climbing higher.

Analyst Take

Mercury Systems is focused on building the next generation of defense electronics. It is the leading provider of secure and safety-critical items to the defense industry.

Spending on advanced defense weapons and electronics continues to rise, and MRCY stock is riding high on this powerful trend. The company has strong growth catalysts, which will likely continue to boost the business (and the value of Mercury Systems stock).