Piper initiates Mercury Systems at overweight, sees upside from defense autonomy

Investing.com -- Piper Sandler initiated coverage of a defense-electronics supplier with an Overweight rating and a $126 price target, citing rising demand for ruggedized computing as military systems become increasingly autonomous and software-driven. The analyst sees roughly 15% upside from the stock's $109.15 price.

The brokerage said the company is positioned to benefit from growing processing requirements across military platforms, particularly as autonomous systems and next-generation command-and-control initiatives expand. Its Common Processing Architecture serves more than 300 active defense programs across over 25 prime contractors.

Piper Sandler initiated coverage of Mercury Systems, saying recent business momentum supports further organic growth despite the stock's roughly 200% gain over the past two years. The company posted record bookings of $348 million in its latest quarter, up 74% year over year, while backlog growth reached 18%.

The brokerage expects rising production volumes, development programs moving into production and wider adoption of Mercury's processing platform to support growth. It forecasts about a 10% revenue compound annual growth rate through 2030 and sees adjusted EBITDA margins progressing toward the low-to-mid 20% range, alongside roughly 50% free-cash-flow conversion.

Piper also highlighted the company's turnaround, including the retirement of challenged programs and a shift toward an 80% production and 20% development mix. Production programs carry margins about 1,000 basis points higher than development work, creating scope for further profitability gains as volumes rise.

The brokerage flagged risks from government spending cycles, customer concentration and supply-chain constraints. The company relies heavily on a limited number of suppliers for FPGAs, ASICs, processors and memory, while its three largest prime customers account for 33% of revenue.

You May Also Be Interested In

• Mercury Systems (MRCY) PT Raised to $110 at JPMorgan
• Fed watchdog calls for stronger controls on information sharing
• Karman Holdings stock falls after short-seller questions cash flow