MERCURY SYSTEMS, INC. (MRCY): what the price assumes
In the published model solve dated 2026-Q2, anchored at $90.98, MERCURY SYSTEMS, INC. (MRCY) is priced for today's economics sustained for ~12.4 years. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-06-27.
Generated: 2026-07-29 · Exported: 2026-08-01 · Source: https://boothcheck.com/report/MRCY
Headline
| Field | Value |
|---|---|
| Ticker | MRCY |
| Company | MERCURY SYSTEMS, INC. |
| Current price | $90.98/sh |
| Composition | Components 21% / Modules and Sub-assemblies 27% / Integrated Solutions 52% |
What The Price Assumes (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | whole-company |
| Trailing margin (depressed year) | 1.0% |
| Must persist for | 12.4y |
| Multiple paid | 64x mid-cycle operating income |
Solve inputs: computed at a 9.6% cost of capital; growth searched up to the 25% self-funding ceiling; each 1pp moves the implied horizon ~2.2 years.
How unusual the bet is: elevated
| Reference | Value |
|---|---|
| vs own history | +0.50σ |
| sustained it ~10 years at this level | 15% |
| implied end-window share | 0% |
Valuation X-Ray
The price is justified by relative-multiple; asset-based/earnings-power/growth-DCF land below the price.
How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.
| Family | Median price/FV | Models | Reads |
|---|---|---|---|
| Asset | 3.86x | 2 | expensive |
| Earnings | 11.11x | 1 | expensive |
| Relative | 1.12x | 3 | expensive |
| Growth | 1.53x | 3 | expensive |
Families that justify the price: Relative Families that call it expensive: Asset, Earnings, Growth
The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 8.4%); the inversion above states its own rate.
Per-Model Detail (n=9)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | $22.18 | 4.10x | yes | FCF base $0.1B, growth 9% (input: historical growth), terminal g 4.0%, WACC 8.4%, 6yr projection |
| DCF Exit Multiple | Growth | $65.68 | 1.39x | yes | Exit EV/EBITDA: 124.2x / 126.2x / 128.2x (bear / base = today's held flat / bull), 6yr |
| Relative Valuation | Relative | $81.36 | 1.12x | yes | P/S fallback (negative EPS): Sector P/S 5.0x × TTM revenue — excluded from consensus |
| Simple DDM | Growth | — | — | no | — |
| Two-Stage DDM | Growth | — | — | no | — |
| Simple Excess Return | Asset | $24.87 | 3.66x | yes | Reference only (book value floor): BV/sh $24.87, ROE negative |
| Two-Stage Excess Return | Asset | $22.38 | 4.07x | yes | Reference only (book value with convergence): BV/sh $24.87, ROE converges to ke |
| Discounted Future Market Cap | Growth | $59.47 | 1.53x | yes | Rev $1.0B, growth 9% (input: historical growth; tapered), Terminal P/S: 4.6x / 5.6x / 6.5x (bear / base = today's held flat / bull, cap 8x) |
| Peter Lynch Fair Value | Relative | $0.00 | — | no | Negative/zero EPS — earnings-based value floored at $0 |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | — | — | no | — |
| Residual Income | Asset | — | — | no | — |
| Graham Number | Asset | — | — | no | — |
| EV/EBITDA Relative | Relative | $7.01 | 12.98x | yes | EBITDA $0.05B × sector EV/EBITDA 16.0x |
| FCF Yield | Earnings | $8.19 | 11.11x | yes | FCF $73.5M / Kₑ 9.3% — zero-growth perpetuity |
| SBC-Adj FCF Yield | Earnings | $2.43 | 37.44x | yes | SBC-adj FCF $0.04B (FCF $0.07B − SBC $0.03B) capitalized at Kₑ (excluded from median) |
| Ben Graham Formula | Earnings | — | — | no | — |
| ROIC-Justified P/B | Asset | $0.69 | 131.86x | yes | BV $24.87 × (ROIC 0.2% / WACC 8.4%) (excluded from median) |
| P/Sales Sector | Relative | $81.36 | 1.12x | yes | Revenue $0.97B × sector P/S 5.0x |
| PEG Fair Value | Relative | — | — | no | — |
| Earnings Yield | Earnings | — | — | no | — |
| Funds From Operations Multiple | Relative | — | — | no | — |
| Clinical Phase NPV | Growth | — | — | no | — |
| Merton | Asset | — | — | no | — |
| V5 Mechanical | — | — | — | no | — |
Solvency
| Field | Value |
|---|---|
| Net cash | $139.3m |
| Net debt / NOPAT (after-tax) | -2.09x (net cash) |
| Net debt / operating income (pre-tax) | -1.65x (net cash) |
| Interest coverage | 2.7x |
| Share count CAGR (dilution) | 1.5% |
| Burning cash | no |
Leverage and coverage are computed on normalized mid-cycle operating income (mid-cycle margin 8.7%); the trailing year was depressed.
Bullet Takeaways
The single decisive number is the backlog. Mercury reported record bookings and backlog in Q3 fiscal 2026, the clearest sign the defense-electronics turnaround is converting demand into committed revenue rather than just hope.
The margin recovery is following. Q3 adjusted EBITDA rose 46% to $36.1 million at a 15.3% margin, up 360 basis points, on revenue of $235.8 million and 11.5% organic growth. Trailing operating income is still depressed, so the price runs on normalized, not current, earnings.
The valuation already pays for success. At $114.14 the market is paying roughly 86x mid-cycle operating income, an elevated bet that assumes the turnaround not only completes but compounds for years. Net cash of about $139 million gives the company room to execute, but the price leaves little room to stumble.
Bull Case
The decisive metric is backlog, and it is at a record. Mercury Systems sells processing subsystems and components into defense platforms, a business whose health is measured first by what customers have committed to buy. In Q3 fiscal 2026 the company reported record bookings and record backlog, which is the single number that, if it holds, validates the entire turnaround thesis. Backlog is forward revenue with a contract behind it, and for a company that spent the past few years cleaning up integration and delivery problems, a record book is the market telling Mercury its execution is being trusted again.
The margin is now following the backlog, which is what separates a real turnaround from a hopeful one. Q3 revenue rose 11.5% organically to $235.8 million while adjusted EBITDA jumped 46% to $36.1 million at a 15.3% margin, up 360 basis points year over year. Management attributes the improvement to accelerated material staging and automation that improved delivery linearity and backlog-conversion rates, and it raised fiscal 2026 guidance to revenue growth approaching mid single digits from low single digits while pointing to positive free cash flow ahead. The inversion deliberately prices the company on its through-the-cycle margins rather than the trough quarter, because trailing earnings are depressed by exactly the issues now being fixed.
The balance sheet and the end-market support the runway. Mercury carries about $139 million of net cash, gross debt of only $193 million, and over $330 million of liquid assets, so it can fund the operational investments the turnaround requires without strain. It sits in software-defined defense electronics, a durable demand area, and its content gets designed onto programs of record that run for years. For a buyer who believes the record backlog converts at the recovering margin, the bull case is a fixed business in a growing end-market whose normalized earnings power is far above the depressed trailing numbers the static methods see.
Bear Case
The qualitative problem comes first: the price treats a turnaround that is still in progress as if it were already finished. Management said in early 2026 that the company had "successfully navigated its most difficult chapter" and that the transition from a loose collection of acquisitions to a disciplined systems provider is "largely complete." Largely is the operative word. Mercury's recent history is a reminder of how fragile that progress is, and the filing spells out the failure mode in plain language, warning that cost or delivery issues can result "in lost customers and programs" and that "negative perceptions regarding cost or delivery issues may further impact our ability to secure business" (FY2025 10-K, accession 0001049521-25-000024). Reputational damage in defense procurement is slow to repair, and the stock has already shown how violently it reacts to setbacks, falling 25% on a single disappointment.
The disconnect between price and current fundamentals is stark. Trailing operating income is about $9.4 million on a roughly 1% current margin, yet at $114.14 (June 27, 2026) the market is paying about 86x mid-cycle normalized operating income, a multiple the model flags as elevated and that only about 15% of comparable fast-growers have sustained for a decade. The static methods that price what Mercury earns today are far below: FCF yield at $7.15, EV/EBITDA relative at $17, DCF perpetual growth at $21. Even the forward methods that give credit for recovery, DCF exit multiple at $81 and P/Sales at $81, sit below the price. The reverse-DCF reasonable band lands at roughly $17 to $31, and its reliability is flagged low because normalizing a company mid-recovery is genuinely hard.
The contract structure is where a stumble would show. Mercury recognizes much of its revenue on fixed-price arrangements "based on the ratio of actual contract costs incurred to date to the Company's estimate of total contract costs," and it must recognize "anticipated contract losses as soon as they become known and estimable" (accession 0001049521-25-000024). That is precisely the mechanism that produced the prior charges: when cost estimates on a fixed-price defense program slip, the loss hits immediately. The bear case is that the market has paid a recovery-complete multiple for a recovery that is recovery-mostly, and the very contract type driving the rebound is the one that punishes any backsliding hardest.
Valuation
Mercury is a turnaround priced on its normalized earnings power, not its trough. Trailing operating income is depressed at about $9.4 million on a roughly 1% margin, so capitalizing current earnings is meaningless and the static methods reflect that distortion: FCF yield at $7.15, EV/EBITDA relative at $17, and the book-value floor near $22 to $25. The inversion deliberately uses the company's own through-the-cycle margins on current revenue, and on that normalized basis the market is paying about 86x mid-cycle operating income at $114.14, which implies operating growth held near its self-funding ceiling for roughly 15 years, computed at a 9.7% cost of capital. The model labels that elevated.
The forward-growth methods give the recovery its due but still fall short of the price. DCF Exit Multiple lands at $81, Discounted Future Market Cap at $75, and P/Sales at $81, all crediting the revenue and margin rebound, yet all below $114. The reverse-DCF reasonable-growth band is roughly $17 to $31 with a base near $21, and its reliability is flagged low precisely because a mid-turnaround company is hard to normalize with confidence. There is also a measurement note worth stating: the trailing EDGAR operating income and the record-basis figure the inversion prices differ by more than ten percent, so the two are different bases and neither is silently substituted.
The synthesis is that the price has run ahead of even the optimistic methods. The bull number is the through-cycle margin times a growing revenue base, which is real and improving. But at 86x normalized operating income the price already assumes the backlog converts cleanly, the margin keeps climbing, and the growth persists far longer than precedent supports. The gap between the methods, which cluster well under the price, and the quote is the durability-and-execution premium. It is a coherent bet on a company that is genuinely fixing itself, but it is a premium for a finished turnaround, not a discount for an unfinished one.
Catalysts
The Q3 fiscal 2026 print, reported in early May 2026, is the load-bearing catalyst: revenue of $235.8 million with 11.5% organic growth, adjusted EBITDA up 46% to $36.1 million at a 15.3% margin (up 360 basis points), and record bookings and backlog. Management raised fiscal 2026 guidance to revenue growth approaching mid single digits and pointed to positive free cash flow in the next quarter, attributing the gains to accelerated material staging and automation that improved delivery and backlog conversion (Simply Wall St; Motley Fool transcript).
The forward set is execution proof. The swing factors into the next prints are backlog-conversion rates, whether adjusted-EBITDA margin keeps climbing, the arrival of sustained positive free cash flow, and any fixed-price-contract cost surprises that would force immediate loss recognition. Management has framed the hardest chapter as behind it, but commentary flags watching for revenue air pockets even as the long-term trajectory in software-defined defense electronics looks robust (Seeking Alpha; FinancialContent). The stock's prior 25% single-day drop is a reminder that the recovery premium leaves little tolerance for a miss.
Sources: Mercury Systems Q3 fiscal 2026 results (Simply Wall St; Motley Fool and AOL transcripts, 2026); Seeking Alpha and FinancialContent turnaround coverage (2026).
Peer Cohorts (Per Segment, With Filing Citations)
Mercury Systems (consolidated) (reported)
- OSIS (OSI SYSTEMS, INC.)
- FY2025 10-K: …Income F-8 Consolidated Statements of Stockholders' Equity F-9 Consolidated Statements of Cash Flows F-10 Notes to Consolidated Financial Statements F-11 Supplementary Data-Unaudited Quarterly Results F-42 F-1 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of…
- FY2025 10-K: $ 5.45 $ 7.55 $ 8.93 Diluted $ 5.34 $ 7.38 $ 8.71 Shares used in per share calculation: Basic 16,828 16,978 16,760 Diluted 17,190 17,354 17,178 See accompanying notes to Consolidated Financial Statements. F-7 Table of Contents OSI SYSTEMS, INC. AND SUBSIDIARIES…
- PENG (PENGUIN SOLUTIONS, INC.)
- FY2025 10-K: …the Penguin Solutions, Inc. Amended and Restated 2021 Inducement Plan S-8 POS 333-286347 99.6 06/30/2025 10.7 Form of Restricted Stock Unit Award Agreement (Cash-Settled) under the Penguin Solutions, Inc. Amended and Restated 2021 Inducement Plan S-8 POS 333-286347 99.7 06/30/2025 10.8 Form of Performance Stock…
- FY2025 10-K: 30/2025 4.10 Indenture, dated as of August 6, 2024, between SMART Global Holdings, Inc. and U.S. Bank Trust Company, National Association, as Trustee 8-K 001-38102 4.1 08/06/2024 4.11 Form of certificate representing the 2.00% Convertible Senior Notes due 2030 (included as Exhibit A to the Indenture filed as Exhibit…
- ON (ON Semiconductor Corporation)
- FY2025 10-K: …technologies, including associated intellectual property licenses, from Aura Semiconductor to further enhance its power management portfolio within the AMG reportable segment. The total purchase consideration is up to $ 144.0 million in cash, subject to customary purchase price adjustments. Of this amount, $ 72.0…
- FY2025 10-K: …Inc., Goldman Sachs Bank USA, HSBC Securities (USA) N.A., Morgan Stanley Senior Funding, Inc., MUFG Bank, LTD, PNC Bank, National Association and Sumitomo Mitsui Banking Corporation, as joint lead arrangers and joint bookrunners and BMO Capital Markets, as sustainability structuring agent (incorporated by reference…
- IPGP (IPG PHOTONICS CORP)
- FY2025 10-K: …to incorporate our products into their systems. Our sales depend in part on our ability to maintain existing and secure new OEM customers. Our revenues also depend in part upon the ability of our current and potential OEM customers and system integrators to incorporate our laser and amplifier products. The commercial…
- FY2025 10-K: …completed to date. The determination of the revenue to be recognized in a given period for performance obligations over time is based on the input method. The Company generally uses the total cost-to-cost input method of progress because it best depicts the transfer of control to the customer that occurs as costs are…
- QRVO (Qorvo, Inc.)
- FY2025 10-K: …Supplies for such commodities may from time to time become restricted, or general market factors and conditions may affect the pricing of such commodities. We also have an active reclamation process to capture any unused gold. While we attempt to mitigate the risk of increases in commodity-related costs, there can be…
- FY2025 10-K: …which do not include any financing components. There have been no material impairment losses on accounts receivable for fiscal years 2025, 2024 or 2023. Contract assets and contract liabilities recorded in the Consolidated Balance Sheets were immaterial as of March 29, 2025 and March 30, 2024. The Company invoices…
- FORM (FormFactor, Inc.)
- FY2025 10-K: …The acquisition expands the Company's testing capabilities in these areas and supports customers as SiPh and co‑packaged optics technologies transition from development into high‑volume manufacturing, including applications related to artificial intelligence infrastructure. The acquisition was accounted for under the…
- FY2025 10-K: …Systems 5,843 Leased Dresden, Germany Sales and service All 2,960 Leased Tsukuba, Japan Sales and service All 868 Leased Hiroshima, Japan Sales and service All 468 Leased Item 3: Legal Proceedings Information with respect to this item may be found under the caption "Legal Matters" in Note 12, Commitments and…
- ICHR (Ichor Holdings, Ltd.)
- FY2025 10-K: …0001652535 00-0000000 2025 FY FALSE P7Y P1Y 1 xbrli:shares iso4217:USD iso4217:USD xbrli:shares xbrli:pure ichr:segment ichr:lease 0001652535 2024-12-28 2025-12-26 0001652535 2026-02-13 0001652535 2025-06-27 0001652535 2025-09-27 2025-12-26 0001652535 2025-12-26 0001652535 2024-12-27 0001652535 2023-12-30 2024-12-27…
- FY2025 10-K: …November 29, 2016). 10.7+ Form of Nonqualified Stock Option Agreement (Incorporated by reference to Exhibit 10.14 to Amendment No. 2 Registration Statement on Form S‑1 filed with the S EC on November 29, 2016). 10.8+* Ichor Holdings, Ltd. 2025 Omnibus Incentive Plan 10.9+ Form of Performance Restricted Stock Unit…
- UCTT (Ultra Clean Holdings, Inc.)
- FY2025 10-K: …and (ii) user access controls to ensure appropriate segregation of duties and to adequately restrict user and privileged access to appropriate company personnel. (b) The Company did not design and maintain effective controls for certain other international operating subsidiaries in the Products segment. Specifically,…
- FY2025 10-K: …cycles within the semiconductor industry. • Continue to selectively pursue strategic acquisitions . We will continue to consider strategic acquisitions that enable us to improve our financial model, expand our geographic presence, secure new customers and diversify into adjacent markets as well as broaden our…
Methodology Note
- Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
- Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
- Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
- Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.
Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.