During the past decade, Primes acquired multiple traditional Tier 2 suppliers, leaving a vacuum in the marketplace. Investors overly discount Mercury’s long-term growth prospects even as Primes increasingly outsource, sub-scale Tier 3’s are acquired, and DoD accelerates digital/electronic modernization. Given the uniqueness of this business strategy and domestic manufacturing capability, it would be more appropriate to compare Mercury to commercial electronics/semiconductor manufacturers who have higher barriers to entry in growing markets (17.5x-22.5x normalized EV/EBITDA), than regular defense Primes/suppliers (10x-15x normalized EV/EBITDA).ī.
Further, by creating a domestic microelectronic manufacturing base capable of securing and utilizing the latest semiconductors, Mercury is able to build subsystems with more advanced processing capabilities than competitors. By internally sourcing and pre-integrating many of the components together, Mercury is capable of manufacturing subsystems at a lower cost than competitors but with superior margins, while streamlining time to market for Primes and therefore disintermediating typical Tier 2 suppliers. Primes then have to integrate the Tier 2’s proprietary components to government or Prime IP. Typical Tier 2 electronics suppliers provide subsystems to Primes via cost-plus contracts, a lower margin but externally funded R&D model.
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Mercury differs from a standard Tier 2 defense supplier in several ways including its commercial revenue model, pre-integrating subsystems, utilizing open architecture software and domestically manufacturing microelectronic components. Mercury inappropriately characterized as a typical defense supplier as opposed to a specialized electronics manufacturer to the defense industry. Valuation ranges from $48.25/share to $237.50/share over five years, with scenarios ranging from no growth/no M&A to ~25% market share of the Sensor and C4I end markets.Ģ) An opportunity is available due to several reasons:Ī.
Mercury is poised to grow given a durable market expansion despite low single digit DoD budget growth, while utilizing their platform and unleveraged balance sheet to inflect growth in acquired smaller Tier 3 suppliers unable to scale domestic manufacturing capacity.ġ) At the current price of $67.04/share, the market ascribes no value to future organic growth/M&A, and little value to margin improvements. This shift in DoD emphasis is forcing defense Primes to outsource subsystems to suppliers such as Mercury to take advantage of specialization in leading edge electronic systems. The Department of Defense (DoD) is undergoing a paradigm shift concerning electronic subsystems reforming procurement standards, requiring secure domestic supply chains and increasing budget allocations to electronic improvements for new/existing programs, all with the intent to accelerate technological capabilities. Mercury Systems (MRCY) is a manufacturer and supplier of secure sensor and mission processing subsystems for defense applications in the Sensor/Effector and Command/Control/Comms/Computers/Intelligence (C4I) submarkets. Semones, and Ashok Dhawan in November 2000 and is headquartered in Santa Clara, CA.Mercury Systems (MRCY – NYSE): Defense Electronics Platform Benefiting from DoD Modernization Efforts The company was founded by Loi Nguyen, Gopal Raghavan, Timothy D. The Semiconductor solutions comprises of solutions that address bandwidth bottlenecks in networks maximize throughput and minimize latency in computing environments and enable the rollout of next generation communications, datacenter, and computing infrastructures. The Analog and mixed signal semiconductor solutions offers high signal integrity at data speeds while reducing system power consumption. engages in the provision of analog and mixed signal semiconductor solutions for the communications and computing markets. stock price prediction is currently bullish. is trading on New York Stock Exchange with the sign IPHI. stock price is closed at $ 172.27 with a total market cap valuation of $ 9.25B ( 44M shares outstanding).
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