Mercury Systems ‘ latest earnings report was a “key proof point”, according to JPMorgan. The bank upgraded the aerospace and defense company to overweight from neutral. Although it lowered its price target to $102 from $110, the new forecast implies 22% upside from Tuesday’s close. Mercury on Tuesday reported fiscal first-quarter earnings and revenue that beat expectations. The company also raised its full-year adjusted EBITDA guidance and hiked its revenue growth outlook. It was a strong quarter for Mercury, analyst Seth Seifman wrote in a Wednesday note, so strong that it may not be repeated in subsequent quarters. However, he added that he does not view the recent quarter as a ceiling for the company. MRCY 3M mountain Mercury Systems three-month. “Strong bookings boosted the backlog, providing visibility to support our expectation for double-digit sales growth,” Seifman said. “And with net leverage set to reach ~0.5x by June 30, mgmt should have more flexibility for cash deployment.” Particularly encouraging for Seifman was that bookings were diversified across missiles, radar and other electronic-warfare technologies. But he said the most striking detail in the financial report was Mercury’s 35.2% gross margin — the highest since its second quarter in fiscal 2023. The number is key to understanding how profitable the company’s backlog is, Seifman said, and understanding that the company has more room to run. “Winning new business in a high-demand environment will govern the aggregate maturity of the programs in Mercury’s portfolio,” he said. “Nevertheless, it’s hard to escape the conclusion that Mercury’s Q1 performance indicates that the company can deliver this type of [return on sales] and more over time.”
