Canaccord Genuity raised its 12-month price target on Mercury Systems (NASDAQ:MRCY) to $102.00 from $88.00 and maintained a Buy recommendation following the company’s fiscal second-quarter performance. The move follows a quarter in which Mercury exceeded consensus revenue and profitability expectations and produced notable operating cash flow and free cash flow improvements.
Mercury reported Q2/26 revenue of $233 million, a 4.4% increase compared with the year-ago quarter. That top-line figure outpaced consensus by roughly 10.6%. On an adjusted basis the company posted earnings per share of $0.16, a 136% increase year-over-year, and reported adjusted EBITDA of $30 million, up 36.3% from the prior year.
Despite those adjusted gains, InvestingPro data indicates Mercury is not profitable on a trailing-twelve-month basis, with diluted EPS of -$0.52. Analysts, however, have forecast that the company will return to profitability this fiscal year, with a projected EPS of $0.99.
Management attributed part of the quarter’s revenue strength to timing effects related to a record 42-day U.S. government shutdown. The company indicated that approximately $30 million of revenue in the quarter reflected accelerated deliveries across several customers’ high-priority programs, with those shipments coming from bookings recorded in prior quarters.
On margins, Mercury generated roughly 26% gross margins in the quarter, a decline of about 130 basis points from the year-ago period. Adjusted EBITDA margins, by contrast, improved to approximately 13%, a rise of 302 basis points year-over-year. Management credited continued execution on shipping hardware and converting lower-margin development work from backlog into higher-margin hardware shipments for the improvement in adjusted EBITDA margins.
Cash flow metrics showed a tangible improvement in the period. The company reported operating cash flow of about $52 million and free cash flow of approximately $46 million. The cash flow performance reflected around $44 million in sequential working capital improvement, part of a stated objective to reverse a multi-year trend of working capital growth.
The quarter also included specific analyst-focused results that underscore the beat versus expectations. Mercury reported adjusted EPS of $0.16, which was double the commonly referenced forecast of $0.08, and revenue of $233 million, roughly 10.42% higher than the anticipated $211.01 million. The company said no mergers or other significant corporate transactions had occurred during the period, and analyst firms had not provided updates regarding upgrades or downgrades tied directly to these results.
Mercury’s equity performance over the previous 12 months has been notable. InvestingPro data shows the stock delivered a 135.88% total return over the past year and was trading at $99.28, near a 52-week high of $103.84 at the time of the pricing action and results release.
Canaccord’s decision to raise the price target to $102.00 while retaining a Buy rating reflects the firm’s reaction to the quarter’s stronger-than-expected revenue, adjusted profit metrics and cash flow improvements. The company’s performance during a quarter impacted by a prolonged government shutdown highlights the role of contract timing and backlog conversion in shaping near-term results.
What this means for markets and investors
- Mercury’s results and the price-target increase are positive for investors focused on defense technology names and suppliers that convert engineering backlog into hardware revenue.
- Improved adjusted EBITDA margins and stronger cash generation could influence how analysts and market participants view Mercury’s operational leverage and the path back to full-year profitability.
- The stock’s recent strong performance, including a 135.88% year-over-year return, places valuation and near-term upside into the context of an elevated share price trading close to its 52-week high.
Context and limitations
The company disclosed that the quarter included approximately $30 million of accelerated deliveries tied to high-priority customer programs, a timing-driven boost tied to bookings from earlier periods. While this helped revenue for the quarter, it reflects delivery timing rather than incremental new bookings recognized in the quarter.
Management emphasized progress on working capital reduction, reporting about $44 million of sequential improvement. That step contributed materially to operating and free cash flow in the quarter, but longer-term reversal of a multi-year working capital trend remains an objective rather than a completed structural change.