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Mercury (MRCY) Completes the Buyout of Physical Optics

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Mercury Systems (MRCY - Free Report) recently completed the previously announced acquisition of Physical Optics Corporation, a California-based designer, developer and integrator of advanced technologies.

On Dec 7, the company had entered into a definitive agreement to acquire Physical Optics in an all-cash transaction worth $310 million, subject to net working capital and net debt adjustments. The buyout has been funded through a combination of available cash and Mercury’s existing revolving credit facility.

Notably, the acquisition of Physical Optics aids the expansion of Mercury Systems’ avionic product and technology portfolio by including the former’s portfolio of data storage, transfer and encryption technology solutions.

The company also benefits from additional capabilities on new and existing airborne programs, which boost mission management content on its platform. Moreover, Mercury gains access to Physical Optics’ skilled workforce of approximately 350 employees, which will help the former enhance its expertise.

Further, Mercury stated that Physical Optics is likely to generate revenues of more than $120 million for the fiscal year ending Dec 31, 2020. Also, the integration is expected to be immediately accretive to adjusted earnings per share.

Expanding Product Offerings to Drive Growth

Mercury Systems’ shares have gained 26.9% year to date compared with the Zacks Computer - Peripheral Equipment industry’s growth of 57.5%.

Notably, earlier this month, the company introduced open architecture electromagnetic spectrum (EMS) processing subsystems, which enable rapid and cost-effective deployment of electronic warfare and intelligence solutions by its customers. Also, it launched the MissionPak SLC ultra-portable secure solid-state drive (SSD) to deliver fast, reliable and secure storage, which will safeguard sensitive data from potential cyberattacks.

Further, the launch of the TAC-3290 family of adaptive microwave tuners, which facilitate faster data processing, and the HDC-U.2 High Density Compute and HDS8R storage blades in September bodes well for the company’s robust product portfolio.

Moreover, the recent acquisition of Physical Optics widens the company’s existing product bandwidth, which will help it attract new customers by offering new capabilities and win defense contracts, thereby boosting the top line in the near term.

Zacks Rank & Stocks to Consider

Mercury currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are PerkinElmer , Avnet (AVT - Free Report) and CDW Corporation (CDW - Free Report) . PerkinElmer sports a Zacks Rank #1 (Strong Buy), while Avnet and CDW carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for PerkinElmer, Avnet and CDW is currently pegged at 19.5%, 19% and 13.1%, respectively.

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