Mercury Systems (MRCY): Assessing Valuation After a 76% Year-to-Date Share Price Rebound

Mercury Systems stock in focus

Mercury Systems (MRCY) has quietly staged a sharp recovery this year, with the stock up about 76% year to date and roughly 97% over the past year, drawing fresh investor attention.

See our latest analysis for Mercury Systems.

That surge reflects a clear shift in sentiment, with the recent 7 day share price return of 5.54% adding to a strong 1 year total shareholder return of 96.7%. This suggests momentum is still building despite past volatility.

If Mercury's rebound has you rethinking the defense space, this could be a good moment to see what else is moving across aerospace and defense stocks.

With the shares now hovering near analysts’ targets after a rapid rerating, investors face a key question: does Mercury still trade below its true potential, or is the recent rally already pricing in future growth?

Most Popular Narrative: 13.4% Undervalued

With a fair value estimate of $86 against a last close of $74.49, the leading narrative points to upside that depends heavily on execution and mix.

Ongoing operational improvements including automation, streamlined processes, and working capital reduction are driving operating leverage, and as low margin legacy backlog is replaced by new, higher margin contracts, this is expected to result in sequential margin expansion and improved earnings trajectory.

Read the complete narrative.

Curious how modest top line assumptions can still justify a punchy earnings ramp and a rich future profit multiple for a defense contractor? The narrative leans on a sharp margin reset, a pivotal swing from losses to profitability, and a valuation framework that treats Mercury more like a high growth platform rather than a traditional hardware supplier. Want to see which specific growth and profitability milestones underpin that $86 fair value? Read on to unpack the full story behind these projections.

Result: Fair Value of $86 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, sustained low-margin legacy contracts and unrepeatable revenue pull-forwards could cap margin expansion and derail the expected earnings ramp.

Find out about the key risks to this Mercury Systems narrative.

Another Lens On Valuation

While the narrative points to 13.4% upside, our DCF model paints a colder picture. On that cash flow view, Mercury looks overvalued, with a fair value estimate of $46.33 versus the current $74.49. Which story do you trust more, the growth narrative or the cash flows?

Look into how the SWS DCF model arrives at its fair value.

Build Your Own Mercury Systems Narrative

If this view does not quite align with your own, or you would rather dive into the numbers yourself, you can build a tailored thesis in under three minutes: Do it your way.

A good starting point is our analysis highlighting 1 key reward investors are optimistic about regarding Mercury Systems.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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