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Mercury Systems (MRCY) Stock Rises 10% on JANA Stake Build-Up
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Mercury Systems’ (MRCY - Free Report) shares rallied 10.3% on Thursday after activist investor, JANA Partners LLC, revealed acquiring a 6.6% stake in the aerospace and defense contractor.
In a filing with the U.S. Securities And Exchange Commission ("SEC") under Schedule 13D, JANA Partners revealed buying roughly 3.73 million common stocks of Mercury Systems for approximately $181.1 million, with an option to purchase additional 173,300 shares. The filing showed that the activist firm was building its stake in Mercury Systems for nearly two months.
JANA Might Push Mercury Systems’ Sale
Founded in 2001 by Barry Rosenstein, JANA Partners LLC is an investment manager specializing in event-driven investing. The investment firm has a reputation of working collaboratively, behind the scenes with target companies as well as investing in those organizations where there is a possibility of a clear value-driven catalyst.
In the filing with SEC, JANA Partners said that it intends to have discussions with Mercury Systems’ management to consider ways to maximize shareholder value. The discussion would be aimed at “evaluating strategic alternatives, including a sale of the Issuer, operations, capital allocation, corporate governance, board composition and compensation practices," per the filing.
JANA Partners believes that Mercury Systems’ shares are undervalued. Despite over 10% surge on Thursday, shares of MRCY are down 36.7% so far this year compared with the S&P 500’s gain of 26.2%.
Image Source: Zacks Investment Research
Growth on Product Strength & Acquisitions
Mercury is benefiting from modernization in radar, electronic warfare and C4I, which is providing it with new opportunities in weapon systems, space, avionics processing, and mission computing and embedded rugged services. Domain expertise in analog and digital integration has helped it build a solid long-term relationship with defense prime contractors.
Robust organic growth, including expansion of the microelectronics business, is aiding Mercury’s growth. Strong demand for products, resulting in significant deal wins is driving sales.
Additionally, Mercury Systems has a history of expanding through acquisitions. In November 2021, the company completed the buyout of Florida-based avionics maker, Avalex Technologies Corporation. Since 2014, it has completed 15 acquisitions, which have added significant value to the company and expanded its total addressable market.
In the first quarter of fiscal 2022, Mercury Systems reported revenues (18.3% of total revenues) of $41.3 million, primarily attributable to the acquisitions of Physical Optics Corporation and Pentek. These continued acquisitions will fuel the company’s growth.
However, pandemic-related modernization delays and customer execution issues are likely to continue impacting the company’s revenues in the near term. Though Mercury has been steadily winning federal contracts, these low-margin deals are likely to affect its profitability in the long run.
Zacks Rank & Stocks to Consider
Currently, Mercury Systems carries a Zacks Rank #3 (Hold).
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Mercury Systems (MRCY) Stock Rises 10% on JANA Stake Build-Up
Mercury Systems’ (MRCY - Free Report) shares rallied 10.3% on Thursday after activist investor, JANA Partners LLC, revealed acquiring a 6.6% stake in the aerospace and defense contractor.
In a filing with the U.S. Securities And Exchange Commission ("SEC") under Schedule 13D, JANA Partners revealed buying roughly 3.73 million common stocks of Mercury Systems for approximately $181.1 million, with an option to purchase additional 173,300 shares. The filing showed that the activist firm was building its stake in Mercury Systems for nearly two months.
JANA Might Push Mercury Systems’ Sale
Founded in 2001 by Barry Rosenstein, JANA Partners LLC is an investment manager specializing in event-driven investing. The investment firm has a reputation of working collaboratively, behind the scenes with target companies as well as investing in those organizations where there is a possibility of a clear value-driven catalyst.
In the filing with SEC, JANA Partners said that it intends to have discussions with Mercury Systems’ management to consider ways to maximize shareholder value. The discussion would be aimed at “evaluating strategic alternatives, including a sale of the Issuer, operations, capital allocation, corporate governance, board composition and compensation practices," per the filing.
JANA Partners believes that Mercury Systems’ shares are undervalued. Despite over 10% surge on Thursday, shares of MRCY are down 36.7% so far this year compared with the S&P 500’s gain of 26.2%.
Growth on Product Strength & Acquisitions
Mercury is benefiting from modernization in radar, electronic warfare and C4I, which is providing it with new opportunities in weapon systems, space, avionics processing, and mission computing and embedded rugged services. Domain expertise in analog and digital integration has helped it build a solid long-term relationship with defense prime contractors.
Robust organic growth, including expansion of the microelectronics business, is aiding Mercury’s growth. Strong demand for products, resulting in significant deal wins is driving sales.
Additionally, Mercury Systems has a history of expanding through acquisitions. In November 2021, the company completed the buyout of Florida-based avionics maker, Avalex Technologies Corporation. Since 2014, it has completed 15 acquisitions, which have added significant value to the company and expanded its total addressable market.
In the first quarter of fiscal 2022, Mercury Systems reported revenues (18.3% of total revenues) of $41.3 million, primarily attributable to the acquisitions of Physical Optics Corporation and Pentek. These continued acquisitions will fuel the company’s growth.
However, pandemic-related modernization delays and customer execution issues are likely to continue impacting the company’s revenues in the near term. Though Mercury has been steadily winning federal contracts, these low-margin deals are likely to affect its profitability in the long run.
Zacks Rank & Stocks to Consider
Currently, Mercury Systems carries a Zacks Rank #3 (Hold).
Some better-ranked stocks from the broader technology sector include Google-parent Alphabet (GOOGL - Free Report) , Diodes (DIOD - Free Report) and PTC Inc. (PTC - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Alphabet’s fourth-quarter 2021 earnings has been revised downward by a penny to $26.71 per share over the past 30 days. For 2021, earnings estimates have moved upward by 43 cents to $108.29 per share in the last 30 days.
Alphabet’s earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 41.5%. GOOGL stock has rallied 67.6% year to date (YTD).
The Zacks Consensus Estimate for Diodes’ fourth-quarter 2021 earnings has been revised upward by 23.9% to $1.45 per share over the past 60 days. For 2021, earnings estimates have moved upward by 6.3% to $5.06 per share over the past 60 days.
Diodes’ earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 10%. Shares of DIOD have rallied 52.6% YTD.
The consensus mark for PTC’s first-quarter fiscal 2022 earnings has been revised upward to $1.00 per share from 90 cents 60 days ago. For fiscal 2022, earnings estimates have been revised upward by 27 cents to $4.19 per share in the last 60 days.
PTC’s earnings beat the Zacks Consensus Estimate thrice in the preceding four quarters while missed the same on one occasion, the average surprise being 47.8%. Shares of PTC have increased 0.8% YTD.