Aligned With Department Of Defense Priorities, Mercury Systems Could Hit A $1 Billion Market Valuation

Baird sees 18.6 percent upside in Mercury Systems Inc MRCY as it initiated the coverage of the stock with an Outperform rating and $30 target.

Mercury Systems is a defense electronics company with its content on over 300 programs with heavy concentration in radars and electronic warfare. It has a diverse mix of programs aligned with DoD priorities such as the Patriot Missile, Aegis, several classified radar platforms and Surface Electronic Warfare Improvement Program (SEWIP).

"We continue to see longer-term upside in the MRCY stock and a path to achieving $1+ billion market cap through a combination of continued organic growth plus the benefits of the recently completed transformational deal with MSCC," analyst Peter Arment wrote in a note.

Arment noted that Mercury Systems continues to benefit from rising volume in the above programs along with electronic upgrades to legacy systems.

In addition, the analyst said the possible value of key programs has increased by 3x in the last two years to now over $4.5 billion over the life of the programs.

Further, Arment said the recent acquisition of Radio Frequency (RF) business from Microsemi nearly doubles Mercury Systems' RF and Microwave business.

The analyst expects FY 2017 revenues and adjusted EPS at about $370.3 million and $1.00, respectively, essentially in line with the current guidance objective. The analyst also projects operating income to finish 2017 at about $33.3 million, which results in an operating margin of 9 percent.

At time of writing, shares of Mercury Systems fell 2.89 percent to $24.57.