This Defense Stock Soars on Unusual Upgrade and Earnings

Mercury provides equipment used in refueling systems for Air Force tankers. (Courtesy Mercury)

Shares of aerospace and defense technologies supplier Mercury Systems jumped Tuesday after catching an odd upgrade.

Raymond James analyst Brian Gesuale upgraded Mercury shares to Strong Buy from Outperform, which is unusual because it essentially amounts to moving from Buy to Buy. Brokers and analysts use a variety of labels, but most ratings aggregators boil them down to Buy, Hold, and Sell.

Still, his price target was raised to $80 from $55 a share, and the upgrade was having some impact. Earnings helped too. Mercury Systems stock added 27%, closing at $68.02, while the S&P 500 and Dow Jones Industrial Average rose 1.1%.

Mercury Systems isn’t a household name. It makes “essential components, products, modules, and subsystems” for defense prime contractors. Its technologies are deployed on more than 300 programs across 35 countries.

“We see Mercury as a [Defence Prime Contractor]/Platform agnostic provider of trusted/secure compute [technology] that enables processing at the edge for major weapons systems that are seeing generational budget increases globally in areas such as Air Defense/ Golden Dome /Space/Radar/EW/Cyber,” wrote Gesuale. He expects the company’s margins and valuation multiples to expand in the coming years.

The upgrade follows strong earnings reported Monday evening. Mercury disclosed fiscal fourth-quarter earnings per share of 47 cents from sales of $273.1 million. Wall Street was looking for 22 cents and $244 million, respectively. The company ended the quarter with a record $1.4 billion backlog of work.

The company’s fiscal year ends in June. For fiscal 2026, Mercury management expects sales growth in the “low single digits” and Ebitda profit margins in the “midteens.” That implies sales and earnings before interest, taxes, depreciation, and amortization of about $945 million and $142 million, respectively. Wall Street was looking for similar amounts.

Wall Street expects Ebitda margins to be north of 20% by fiscal year 2028 as sales grow at more than 6% a year on average over the coming three years.

Things are looking up for the company. Overall, 56% of analysts covering the stock rate shares Buy, according to FactSet. The average Buy-rating ratio for stocks in the S&P 500 is about 55%. The average analyst price target for Mercury Systems stock is about $62 a share.

Coming into Tuesday trading, Mercury Systems’ stock had risen about 28% this year and about 58% over the past 12 months.

Write to Al Root at allen.root@dowjones.com