Mercury Systems (MRCY) Stock Forecast & Price Target

Mercury Systems Inc. has demonstrated a significant improvement in its financial metrics, with EBITDA margins increasing by 1,091% year-over-year to 13.1% and free cash flow rising by 356% year-over-year to $119 million. The impressive topline growth is primarily attributed to a nearly 31% year-over-year increase in the sale of Modules and Sub-assembly products, which totaled $246 million in FY25, alongside a robust 11% two-year compound annual growth rate in this product segment. Furthermore, through strategic inorganic growth, the company has expanded its share-of-wallet in the defense electronics market, leading to potential margin expansions and further topline growth opportunities.

Mercury Systems Inc. has experienced a significant decline in quarterly bookings, contracting at a compound annual growth rate (CAGR) of 9.6% for the period from Q3/23 to Q3/25, which negatively affected its book-to-bill ratio, reported at 0.95x for Q3/25. Furthermore, the company's EBITDA multiple of 31.5x for FY26 falls short by 35.4% compared to the SMID cap defense peer group average of 48.8x. Additional concerns arise from reduced year-over-year revenue contributions from its key products, specifically SCAR and ADTS, further indicating potential challenges in driving sales growth.