Mercury Systems (NASDAQ:MRCY)’ MRCY shares appreciated 3% on Nov 29, 2021, after the aerospace and defense technology company announced buying radio frequency (RF) modules designer and manufacturer, Atlanta Micro, Inc.
Though Mercury Systems didn’t disclose the consideration amount paid for the acquisition, it revealed buying Atlanta Micro with cash. The company funded the transaction through its existing revolving credit facility.
Buyout to Strengthen Radar & EW Portfolio
Based in Norcross, GA, Atlanta Micro designs and manufactures advanced monolithic microwave integrated circuits (MMICs) used in high-speed data acquisition applications, including radar, electronic warfare (EW) and weapons.
This transaction will expand Mercury Systems’ RF and microwave component portfolio, and expand its presence in the core radar, EW and weapon markets. This will increase its chances of winning defense contracts for the next-generation critical aerospace and defense applications.
Mercury Systems expects the transaction to be immediately accretive to adjusted earnings per share. Atlanta Micro is projected to generate approximately $16 million in revenues and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) for the 12-month period ending Dec 31, 2022. The transaction is projected to have no material impact on Mercury Systems’ second-quarter fiscal 2022 results.
Mercury Systems Expanding Through Acquisitions
Mercury Systems has a history of expanding through acquisitions. Earlier this month, the company completed the buyout of Florida-based avionics maker, Avalex Technologies Corporation. Since 2014, it has completed 15 acquisitions, which have added significant value to the company and expanded its total addressable market.
In the first quarter of fiscal 2022, Mercury Systems reported revenues (18.3% of total revenues) of $41.3 million, primarily attributable to the acquisitions of Physical Optics Corporation and Pentek. These continued acquisitions will fuel the company’s growth.
Mercury Systems' domain expertise in analog and digital integration has helped it build a strong business relationship with defense prime contractors for a long time. Modernization in radar, EW and C4I is high, providing the company with new opportunities in weapon systems, space, avionics processing and mission computing, and embedded-rugged services.
Also, the fast-growing usage of parallel processing and high-performance computing is prompting companies like Mercury Systems to leverage AI to solve real-world problems across industries.
However, pandemic-related modernization delays and customer execution issues are likely to impact Mercury Systems ‘ revenues in the near term. Though MRCY has been winning federal contracts, these low-margin deals are likely to affect its profitability in the long run.
Zacks Rank & Stocks to Consider
Mercury Systems currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks from the broader technology sector include Google-parent Alphabet (NASDAQ:GOOGL) GOOGL, Diodes (NASDAQ:DIOD) DIOD and PTC (NASDAQ:PTC) Inc. PTC, each sporting a Zacks Rank #1.
The Zacks Consensus Estimate for Alphabet’s fourth-quarter 2021 earnings has been revised downward by a penny to $26.71 per share over the past seven days. For 2021, earnings estimates have moved upward by 43 cents to $108.29 per share in the last seven days.
Alphabet’s earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 41.5%. The GOOGL stock has rallied 66.3% in the year-to-date (YTD) period.
The Zacks Consensus Estimate for Diodes’ fourth-quarter 2021 earnings has been revised upward by 23.9% to $1.45 per share over the past 30 days. For 2021, earnings estimates of Diodes have moved upward by 6.3% to $5.06 per share over the last 30 days.
Diodes’ earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 10%. Shares of DIOD have rallied 53.8% YTD.
The consensus mark for PTC Inc.’s first-quarter fiscal 2022 earnings has been raised to $1.00 per share from 90 cents 30 days ago. For fiscal 2022, earnings estimates have been revised upward by 27 cents to $4.19 per share in the last 30 days.
PTC Inc.’s earnings beat the Zacks Consensus Estimate thrice in the preceding four quarters while missing the same on one occasion, the average surprise being 47.8%. Shares of PTC have declined 7.8% YTD.
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