Mercury Systems Inc MRCY reported a 3% decline in organic earnings for the fiscal fourth quarter and announced disappointing guidance for fiscal 2022, citing the timing of awards, administration changes and customer execution issues as the reasons, according to BofA Securities.
The Mercury Systems Analyst: Ronald Epstein downgraded the rating for Mercury Systems from Buy to Underperform, while reducing the price target from $85 to $56.
The Mercury Systems Thesis: The earlier valuation of the company was based “an adjusted EBITDA number which we believe disguises the real story,” Epstein said in the downgrade note.
“We are now using FCF to determine our valuation which we think shows the company’s true operating prowess … We downgrade to Underperform based on valuation and believe MRCY is now a show-me story until organic growth starts to consistently accelerate,” the analyst wrote.
“We assume 6% org rev growth in FY23 and 7% in FY24 but our adj EBITDA margins do not get back to peak levels despite the 1MPACT efforts underway as we believe the slowdown in sales growth will negatively impact operating leverage,” he added.
MRCY Price Action: Shares of Mercury Systems had declined by 0.52% to $49.75 at the time of publication Friday.
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