What Mercury Systems Can Fetch in a Buyout

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Mercury Systems, Inc. (NASDAQ: MRCY) saw its shares surge on Tuesday after reports that the defense contractor has put itself up for sale. The Wall Street Journal initially reported that is accepting bids and “sources” put out a $500 million number as a rough benchmark.

What 24/7 Wall St. wants to know is what the company might really bring in a buyout. The company provides software applications and processing systems for big data to aerospace and defense firms for defense and intelligence applications. The company claims to have been involved in some 300 defense programs such as Aegis, Patriot, SEWIP, Gorgon Stare and Predator/Reaper.

Investors need to keep in mind that earlier in March came mercury’s announcement that it was making rapid progress on an acquisition integration of its own. The company said that its phase two was expected to generate $16 million in savings once fully implemented.

Mercury is expected to post earnings of $0.18 per share in its fiscal year of June 2015, and sales in that year are expected to be up 8.5% to almost $240 million. mercury lost money in 2013 and is expected to lose money this year as well, but it was profitable in 2012 and 2011.

So, Mercury shares rose some 17% on Tuesday afternoon and the stock was up at $12.95 shortly before the close. It hit a new 52-week high of $13.16 on the day. The adjusted market cap after the pop was $430 million. Mercury had no long-term debt as of the end of 2013.

If $500 million is the real sale price, then that is another 16% higher or close to $15.00 per share. Shares were at $11.05 as of yesterday’s close, and the consensus analyst target price at Thomson Reuters was up at only $11.50. The highest analyst price target is only $14 on Mercury.

The stock hit a high of just over $14 in early 2012, and the stock peaked above $20 in early 2011. It was a $30 stock in 2006 and briefly hit an all-time high of $50 in 2002. We would not expect any of those levels to matter today.

As with all market chatter, we would treat any reports on this matter as a rumor until something more official is heard from the company.

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