Mercury Systems Beats Q1, Raises Guidance, Sparking Valuation Debate

MRCY reported fiscal first-quarter 2027 results (quarter ended Oct 2) on Nov 10 after the close. Revenue was about $253 million, up 12.4%, and adjusted EPS was $0.52 against a $0.30 consensus. Bookings hit a record $370 million, up 48%, a book-to-bill of 1.46, and backlog approached $2.1 billion, per the company's release.

Management raised its fiscal 2027 outlook: adjusted EBITDA around $210 million (about 40% growth), up from a prior view of approaching $200 million, free cash flow conversion approaching 40% from approaching 35%, and revenue approaching $1.1 billion with double-digit growth. The stock closed up 5.7% at $88.33 on Nov 11, per SentiSense data. JPMorgan upgraded it to Overweight from Neutral with a $102 price target, and Piper Sandler reiterated Overweight with a $107 target.

The quality of the quarter is mixed. GAAP net income was $13 million, or $0.21 per diluted share, versus the $0.52 adjusted figure, and free cash flow was negative $24 million against negative $4 million a year earlier. Net debt was $232 million, down 19% year over year, per the release. Investing.com noted that after-hours selling tied to free cash flow worries was outweighed by the market rebound.

The valuation debate comes from two automated Simply Wall St pieces on Yahoo Finance. One says the shares trade about 23% below a consensus fair value of $109.00; the other says they look expensive at about 5.3x price-to-sales against about 3.9x for aerospace and defense. Their sales multiples differ (5.1x versus 5.3x), and they are screens, not analyst ratings.

Next, management expects second-quarter revenue up 10% and positive free cash flow, with second-half cash flow above the first half.