Industrials
Pete Skibitski turns bullish and increases his target price by $20 (to $48) post 4Q24 results - he raises his terminal valuation by four turns, to 18.5x (~20% premium to the S&P 500 on EV/EBITDA), which, combined with a higher forecast following Q4, drives the increase to his TP. While management still targets only modest sales improvement in FY25, adj. EBITDA margin rate should improve nicely into the low double-digits. Pete also believes mid-term Street expectations are too low, as the firm’s FY24 revenue in radar applications was $110.4m, well below its prior peak of $289.2m in FY21. However, he expects MRCY can return to this level, which should drive attractive HSD organic revenue growth.
Edition: 193
- 23 August, 2024
Industrials
Earnings quality concerns remain elevated - lower quality unbilled receivables drove outsized growth in total accounts receivable, which grew significantly faster than sales again in Q3. Accrued expenses continued to decline rapidly. Thus, even though prepaid expenses and other current assets improved slightly during the quarter, Gradient remains concerned about the net effect of recent expense recognition trends. They maintain active coverage with a negative outlook. MRCY's share price has fallen c.30% since they initiated coverage (Jan 22).
Edition: 162
- 09 June, 2023