Insights

Why Mercury Systems Stock Is Falling Today

What happened

Defense electronics specialist Mercury Systems (NASDAQ: MRCY) ran into supply chain and cost pressures in its most recent quarter, and investors are selling the stock as a result. Shares of Mercury opened down as much as 20% on Wednesday, creating a potential buying opportunity for long-term-focused investors.

So what

Mercury manufactures a range of sophisticated electronics systems and applications for the aerospace and defense sector. It’s an under-the-radar business but it is increasingly important as the defense sector shifts away from simple metal-bending and toward more advanced, and digital, systems.

On Tuesday night, the company reported fiscal fourth-quarter earnings of $0.81 per share on revenue of $289.7 million. Revenue was up 16% year over year, but the results missed analyst expectations for $0.99 per share in earnings on sales of $307 million.

CEO Mark Aslett in a statement referenced “unprecedented supply chain, labor and inflationary pressures” that have impacted results, and which are expected to continue in the quarters to come. Given the nature of the company’s business the chip shortage is hitting it particularly hard.

Now what

True, results did miss expectations. And the company isn’t likely to shake off the headwinds it faces anytime soon. But for long-term investors, there was a lot to like about this quarter.

Mercury reported $332 million in future orders in the quarter, ending its fiscal year with a backlog of $1.04 billion. Bookings in the quarter increased by 27% year over year and by 12% from the fiscal third quarter, giving investors remarkable visibility into future quarters.

There is little Mercury can do to address the issues holding it back today, but as supply chains normalize there is a lot of potential for the business to grow. For those who are patient, Wednesday’s decline could be a buying opportunity.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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