Mercury Systems (MRCY:NAS) Fundamental Valuation Report

Fundamental Valuation Report

Mercury Systems(MRCY:NAS)

Technology:Computer Systems

This Report was generated using the valuation tools available on StockCalc.com. For a free 30 day trial click here.

Close Price/Date
$52.52 (USD) 08/11/2018

Weighted Valuation
$59.33 (USD)

Overall Rating
Undervalued by 13.0%

Valuation Models Analyst Consensus: $64.00 (USD)
(in order of importance) Comparables: $52.33 (USD)
Valuation Methods This company is:
Cash Flow: Overvalued on a Cash Flow Valuation
Comparable Company: Fairly valued on a Comparable Valuation
Asset: Overvalued on an Asset Valuation

Company Overview (MRCY:NAS USD)

Price 52.52
Range 51.13 – 52.87
52 week 31.72 – 56.45
Open 51.49
Vol / Avg. 279797/415040
Mkt cap 2.54B
P/E 61.07
Div/yield 0.00/0.00
EPS 0.86
Shares 48.41M
Beta 0.85

Company Description

Mercury Systems Inc provides electronics and technologies to defense prime contractors. Its products include embedded processing modules and subsystems, radio frequency and microwave assemblies, and other electronic components. These products include data signal, sensor, and image processing capabilities, common in military applications. Mercury deploys these products on behalf of the contractors and the U.S. Department of Defense by leveraging proprietary technologies and those from other commercial suppliers. The firm generates a majority of its revenue in the United States, with the rest coming from Europe and Asia-Pacific.

Valuation Details

 We have up to 6 valuation points for each company. Details are at the bottom of the report.

Discounted Cash Flow and Sensitivity Analysis for MRCY:NAS

Using a discounted cash flow model we generated an intrinsic value of $33.60 (USD) for MRCY:NAS

Sensitivity Analysis

(showing how changes in the input variables impact the DCF calculation)

MRCY:NAS Current Values Valuation If Dropped * Valuation If Raised *
Calculated Value: $33.60 1% 5% 1% 5%
WACC (or Ke) 6.59 $43.09 $27.28
Terminal Growth Rate 1.60 $27.78 $42.33
Tax Rate 0.04 $35.91 $31.30
Cash Flow 127,733,184 $31.20 $36.00
Capital Expenditures -13,704,000 $33.37 $33.83
Long Term Debt 190,246,000 $33.80 $33.40

* Changes are absolute: ex WACC from 8% to 7%

Comparables Model

Using similar companies and price based ratios we generated a valuation of $52.33 (USD) for MRCY:NAS. We also generated a valuation of $27.11 (USD) using other metrics and comparables.
The comparable companies were Cray (CRAY:NAS), 3D Systems (DDD:NYS) and Electronics for Imaging (EFII:NAS).

Company MRCY:NAS End Date Value
Earnings/Share $0.86 (USD)
Book Value/Share $15.94 (USD)
Sales/Share $10.39 (USD)
Cash Flow/Share $0.91 (USD)
EBITDA/Share $1.85 (USD)
Price Based on Comps Adjustment Factor (%)
$0.00 (USD) 4.8
$35.95 (USD) -42.2
$18.49 (USD) 14.4
$130.12 (USD) -32.6
$81.12 (USD) 0.0
MRCY:NAS Ratios Used Average Values CRAY:NAS DDD:NYS EFII:NAS
54.49 PE Ratio 0.00 0.00 0.00 0.00
2.94 PB Ratio 2.25 2.65 2.38 1.74
4.51 PS Ratio 1.78 2.00 1.98 1.36
51.35 PCF Ratio 147.08 159.57 253.70 27.96
27.33 EV to EBITDA 43.91 0.00 73.53 14.28

Multiples

Using a multiples approach we generated a valuation of  $38.60 (USD) for MRCY:NAS

Company MRCY:NAS End Date Value
Earnings/Share $0.86 (USD)
Book Value/Share $15.94 (USD)
Sales/Share $10.39 (USD)
Cash Flow/Share $0.91 (USD)
EBITDA/Share $1.85 (USD)
Price Based on Comps Adjustment Factor
$46.21 (USD) 0
$37.42 (USD) 0
$35.02 (USD) 0
$26.58 (USD) 0
$47.77 (USD) 0
Ratios Ratio Average
PE Ratio 53.73
PB Ratio 2.35
PS Ratio 3.37
PCF Ratio 29.13
EV to EBITDA 25.86

Adjusted Book Value versus Historical Price to Book

The average the Price to Book ratio for  MRCY:NAS for the last 10 years was  2.25

We ran the Adjusted Book Value for  MRCY:NAS and generated a book value of  $16.45 (USD)
By multiplying these we get an adjusted valuation of  $37.08 (USD)

Analyst Data

In the Stockcalc database there are 1 analysts that provide a valuation for MRCY:NAS. The 1 analysts have a concensus valuation for MRCY:NAS for 2019 of $64.00 (USD).

MRCY:NAS Mercury Systems

Analyst Recommendation
Buy Hold Sell Rating
(of 5)
Guidance As Of
1 0 0 5.0000 Buy 2018-11-7

Current Price: 52.52 USD

Analyst Consensus
USD Millions 2019 2020 2021
Mean EPS 1.70 2.02 2.34
# EPS Analysts 1 1 1
Mean Revenue 620.00 667.00 707.00
# Revenue Analysts 1 1 1
Mean Target Price 64.00
Mean Cash Flow 2.01
Mean EBITDA
Mean Net Income 43.00 54.00 73.00
Mean Debt Outstanding 128.00
Mean Tax Rate 27.40 27.00 27.00
Mean Growth Rate
Mean Capital Expenditure 30.00

Explanation of Valuation Models

We have up to 6 valuation points for each company in the database.

The Discounted Cash Flow (DCF) valuation is a cash flow model where cash flow projections are discounted back to the present to calculate value per share. DCF is a common valuation technique especially for companies undergoing irregular cash flows such as resource companies (mining, forestry, oil and gas) going though price cycles or smaller companies about to generate cash flow (junior exploration companies, junior pharma, technology firms…).

The Price Comparables valuation is the result of valuing the company we are looking at on the basis of ratios from selected comparable companies: Price to Earnings, Price to Book, Price to Sales, Price to Cash Flow, Enterprise Value (EV) to EBITDA. Each of these ratios for the selected comparable companies are averaged and multiplied by the values for the company we are interested in to calculate a value per share for our selected company.

We have included the Other Comparables as a way to value companies that cannot be valued using Earnings based ratios. This technique is very useful for companies still experiencing negative cash flows such as mining exploration firms. We use Cash/Share, Book Value/Share, MarketCap, 1 Year Return, NetPPE as the ratios here. Each of these ratios for the selected comparable companies are averaged and multiplied by the values for the company we are interested in to calculate a value per share for our selected company.

Multiples are similar to Price comparables where we look at current or historic ratios for the company in question to assess what it should be worth today based on those historic ratios. We use the same 5 ratios as in the price comparables and value the company with its historic averages.

With Adjusted Book Value (ABV) we calculate the book value per share for the company based on its balance sheet and multiply that book value per share by its historical price to book ratio to calculate a value per share.

If we have Analyst coverage for the company we use the consensus target price here.

Notice to User


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