Episode Details

Mercury Systems (MRCY) Q4 FY2026 — MRCY released Q4 and full-year fiscal 2026 AFTER THE CLOSE on Tuesday August 18 (call 5:00 PM ET; Form 8-K 0001049521-26-000043 accepted 20:01 ET and the 10-K 0001049521-26-000045 at 21:05 ET). Shares had ALREADY fallen 7.37 pct to USD105.00 on Aug 18 on 2,040,501 shares (3.35x average) BEFORE the release. On Aug 19 they opened USD104.67, ran to USD108.03, broke to USD97.41 and CLOSED USD101.25 (-3.57 pct) on 1,723,265 shares (2.83x average). Two-session move -10.7 pct. Mercury Systems builds signal and data processing electronics for the large US defense primes from Andover, Massachusetts, with one reportable segment and 97 pct of revenue from government-funded programs. Fiscal 2026 ended July 3, 2026 and was a 53-week year; the fourth quarter ran 14 weeks against 13 a year earlier. Q4 revenue was USD289.8M, adjusted EPS USD0.37 against a USD0.3827 bar, and GAAP EPS USD0.01. For the full year revenue was USD983.6M, adjusted EPS USD1.06, and GAAP a LOSS of USD0.50 a share. THE CALL: AVOID (4/5, HIGH - THE OPERATING TURNAROUND IS REAL; THE PRICE ALREADY ASSUMES THE NEXT ONE) — base-case value ~$67.1 vs ~$101.25 today. KEY METRICS: - PRINT: Q4 revenue USD289.8M (+6.1 pct) but on 14 weeks vs 13 - USD20.70M a week vs USD21.01M, so -1.5 pct like-for-like. Adjusted EPS USD0.37 vs a USD0.3827 bar and USD0.47 a year ago. - ANGLE: FY26 free cash flow fell 42.8 pct to USD68.1M - 45.3 pct of adjusted EBITDA against 99.7 pct in FY25, and management guides FY27 conversion to 35 pct against its own 50 pct target. - CALL: AVOID 4/5. Fair value USD67.10 vs USD101.25 (-33.7 pct). 42.1x trailing adjusted EBITDA, 31.6x the FY27 guide, a 1.12 pct free cash flow yield, and a fourth straight GAAP loss year. What to watch: UP: free cash flow conversion at or above the 50 pct target in fiscal 2027 against a guide of 35 pct; gross unfavorable estimate revisions under USD30M (they were USD47.6M in FY26 and USD47.7M in FY25). DOWN: a fiscal 2027 first quarter cash outflow worse than the larger-than-normal one management already flagged; a rising sold-receivables balance flattering operating cash flow. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.