MRCY
Mercury Systems, Inc.
$98.55
Cyclical & Capital-Intensive
80%
Normalized Earnings × Cycle Multiple
Strong
·
Conviction
Overvalued
Trading 160.5% above fair value
You pay
$98.55
Bear
$29.87
Fair
$37.83
Bull
$45.79
Bear
$29.87
-69.7%
$0.96 × 18x + net cash
Fair
$37.83
-61.6%
$0.96 × 22x + net cash
Bull
$45.79
-53.5%
$0.96 × 26x + net cash
Key Value Driver
Through-cycle normalized EPS ($0.96)
Implied Market Multiple
102.7x
Summary
Our base-case estimate uses Normalized Earnings × Cycle Multiple. We then blend that result with the average analyst price target of $96.60 from 19 analysts, using a 25% weight on analyst consensus. That produces an estimated intrinsic value of $37.83 per share.
Warnings
This company has a built-in lending arm whose debt is mixed in with the main business. We capped the debt adjustment to avoid overstating what the core business owes.
Price-to-book value of 18.2x is above the normal range for this type of business (0.7x-2.0x). The stock may already price in a strong cycle.
Wall Street's average price target is $96.60 (from 19 analysts). Our estimate is 81% below the consensus -- consider that gap carefully.
Key Risks
- Standard 10-year DCF produces unreliable terminal values for cyclicals
- 'Cheap' P/E at cycle peak is the most common value trap — normalize first
- Captive finance subsidiaries have different risk profiles from manufacturing