Mercury Systems (NASDAQ: MRCY) — a key technology supplier for defense and aviation majors — is set to report earnings on Tuesday and they could show another big breakthrough for patient investors.
You see, I’ve been following Mercury stock since 2023. At the time, the company was at a major inflection point, looking to change its fortunes with a new strategy and a new CEO to implement it.
At that point, Mercury had gotten fat and clunky, having gorged itself on acquisitions. It’d gobbled up 17 companies in a 12-year period.
A few of those acquisitions were helpful, but others became a drain. Some 20 programs reduced Mercury’s fiscal-year 2023 earnings by $56 million.
They also drove a sharp increase in the company’s capital expenditure, which consumed 65% of its FY23 revenue compared with just 35% in FY20.
Of course, Mercury’s woes weren’t just a matter of mismanagement. COVID-19 created a raft of supply chain issues that impacted the entire industry.
Those supply chain kinks increased input costs and caused delays in production and delivery.
That also hurt Mercury’s profits, shrinking the company’s margins and stalling its once-rapid growth.
As the company languished, its stock plunged from its lofty highs, losing about half its value.
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Activist investors Jana Partners and Starboard Value forced out the CEO, remade the board of directors, and began soliciting bids for sale.
Mercury was effectively on the auction block.
Unfortunately, they didn’t get the kind offer they were hoping for.
A strategic review and discussions with 20 interested parties resulted in just two acquisition proposals that the new board found to be underwhelming.
So it pivoted again.
Bill Ballhaus took over as CEO and was immediately tasked with streamlining Mercury’s operations.
Over the past year, he’s done just that.
Mercury Earnings Trending in the Right Direction
Mercury’s last earnings report — its fiscal first quarter — showed a 28% decline in operating expenses, which fell from $91 million to $65 million.
Revenue climbed 13%, to $204 million.
The company’s GAAP net loss was halved, shrinking to $17.5 million from $37 million.
Its adjusted earnings improved to $21.5 million from $2 million.
And EPS swung toa $0.04 profit from a $0.24 loss the previous year.
Mercury also reported a record backlog of $1.3 billion, which was up 16% year over year.
These results weren’t just good. They were stellar.
They sent Mercury stock soaring almost 40% in the span of a week to a new 52-week high above $44.
That’s impressive, but it may also just be the beginning of an even bigger, more durable rally.
That’s because Mercury provides crucial software and computer hardware to industry titans across the defense and aerospace sectors.
It’s a critical supplier for dozens of defense majors, including Lockheed Martin, RTX , and Northrop Grumman. And it’s involved in more than 300 defense programs, including the F-16, F-18, and F-35 fighter jets, Predator and Reaper drones, and the Patriot missile system, just to name a few.
That’s why Mercury stock traded as high as $90 per share back in its heyday.
I don’t know if it will get back to that lofty level anytime soon, but there’s definitely some room to grow.
And the company’s earnings report tomorrow could be the impetus for yet another jump in Mercury stock.
