DISCLAIMER: This is a quantitative framework for educational purposes only. It is not financial advice. Always do your own research and consult a licensed financial advisor before making investment decisions.
Horizon
Signal
Primary Score
Confidence
Key Driver
Short-term (1–3 mo)
SELL
45
55%
Trades ABOVE every analyst target ($114 vs $109 high); overbought (monthly RSI 73)
Medium-term (6–12 mo)
SELL
47
55%
Medium-quality turnaround at an Expensive price (EV/EBITDA ~80x, P/FCF ~97x)
Long-term (3–5 yr)
HOLD
55
55%
Quality defense franchise + NATO driver can grow into the valuation over 3–5 yr
A valuation-driven SELL, not a fundamental one: the business is improving and the defense driver is a tailwind, but the stock has run ABOVE the highest analyst target. The Valuation-Ceiling gate fires; the strong driver/economy disagree with the SELL (a noted caveat), which is why the long horizon softens to HOLD. Next update: 2026-07-02 — default +14d (FY Q4 earnings ~early Aug, beyond window).
Five independent 0–100 scores. The base per-horizon BUY/HOLD/SELL comes from Quality / Valuation / Timing via the Decision Matrix; the context pillars (Drivers, Economic Alignment) only amplify a BUY or a SELL when they agree with it. Here a Medium-quality business at an Expensive price yields SELL — and the bullish driver/economy notably disagree, so there is no amplification to STRONG SELL.
Business Quality
62
Real turnaround; margins inflecting
Conf 60%
Valuation
32
Expensive — above the high target
Conf 60%
Entry/Exit Timing
58
Strong uptrend but overbought
Conf 55%
Underlying Drivers
75
Strong tailwind — defense/NATO
Conf 62%
Economic Alignment
78
Trend-Following · Tailwind (Defense O/O/SO)
Conf 65%
Read: The unusual case where the context is bullish but the fundamentals say sell on price. Mercury’s defense-electronics turnaround is genuinely working (EBIT positive in Q3’26, margins recovering, strong balance sheet, minimal dilution) and the NATO/defense driver is a clear tailwind — but at $114.44 the stock trades above every analyst price target (consensus $98.6, high $109) on ~80x EV/EBITDA. A Medium-quality business at an Expensive price → base SELL (short/medium). The driver tailwind keeps the long horizon a HOLD — patient holders can let the franchise grow into the multiple, but this is not a price to add.
2
Hard Gates & Do-Not-Buy Status
Binary safety checks. The Valuation-Ceiling gate fires because price exceeds the highest analyst target; the cash-coverage gate is a turnaround artifact. No hard Do-Not-Buy fires (growth IS accelerating, so the valuation-extreme DNB trigger does not apply).
❌
Gate 3 — Valuation Ceiling Price $114.44 is ABOVE the highest analyst target ($109) and ~16% above consensus ($98.6). Caps any bullish signal at HOLD.
⚠
Gate 1 — Coverage (turnaround) Interest coverage 0.37x TTM — but EBIT just turned positive (Q3’26). Improving; treated as a caution, not distress.
✅
DNB 2 — Valuation extreme Does NOT fire: the multiple is high but growth/margins ARE accelerating, so it is not “extreme without growth.”
✅
Gate 4 — Dilution Share count ~59M, essentially flat. Clear (the opposite of RDW).
✅
Gate 2 — Earnings event No earnings within 14 days (FY Q4 ~early Aug). Clear.
✅
Gate 5 — Binary regulatory None pending. Clear.
Net: the base SELL from the Decision Matrix (Medium quality + Expensive valuation) stands; the Valuation-Ceiling gate independently caps any bullishness at HOLD. The driver/economy tailwinds disagree with the SELL, so it is not amplified to STRONG SELL — and the long horizon is HOLD.
3
Pillar Detail: Business Quality
Why Quality scored 62: a genuine, executing turnaround — recovering gross margin, EBIT turned positive, a sticky ~300-program defense franchise, strong balance sheet and minimal dilution — held just below ‘High’ by still-thin current profitability and low ROIC.
Business Quality — Pillar Score
Medium (high end). A real defense-electronics franchise with margins inflecting positive and a fortress-like balance sheet; not yet ‘High’ because net profitability and ROIC are still recovering from the trough.
Fortress liquidity; manageable leverage — a genuine quality positive.
ROIC / capital allocation
ROIC low; FMP ROE/ROA 1/5
Recovering
45
Returns still below cost of capital at the trough; improving as margins normalise. Minimal dilution = disciplined.
Industry benchmark (Industrials — ROIC vs WACC + backlog): ROIC still below WACC at the trough, but backlog and book-to-bill are healthy and margins are inflecting — benchmark ~58, the bright spot being demand visibility across ~300 defense programs.
Pricing Power
58
Spec'd-in defense content
Network Effects
40
Minimal
Switching Costs
72
Designed into ~300 long-life programs
Cost Advantage
48
Some scale; not dominant
Intangibles
68
Clearances, qualified IP, trusted-foundry
Moat average ≈ 57 — the program-level switching costs and security clearances are a real, if narrow, moat: defense primes don’t re-qualify a subsystem lightly.
4
Pillar Detail: Valuation Attractiveness
Why Valuation scored 32 (Expensive): the stock trades above every analyst target on ~80x EV/EBITDA and ~97x P/FCF. Even the turnaround thesis is more than priced in at $114.
Valuation Attractiveness — Pillar Score
Expensive. Price is ~16% above consensus and above the single highest analyst target; multiples are elevated even allowing for the margin recovery.
32
Confidence 60% · trough-earnings distortion
Lens
Value
Read
EV / EBITDA (TTM)
~80x (EV $7.19B)
Extreme — but on trough EBITDA; normalises lower as margins recover
P / Sales
7.1x
Rich for an ~28% gross-margin hardware business
P / FCF
~97x
High on a depressed FCF base
Forward earnings
EPS ~$2.1 (FY28e) → ~$3.2 (FY30e)
~54x FY28e / ~36x FY30e — paying years ahead for the recovery
Analyst targets
Cons $98.6 (−14%), median $105 (−8%), high $109 (−5%), low $68
Price ABOVE all targets — even bulls see downside to fair value
Grades consensus
SB 1 / Buy 11 / Hold 6 / Sell 1 (63% bullish)
Buy-leaning on the business, but targets lag the price; Goldman at Sell
FMP rating
C- (1/5)
Trough profitability drags it
Embedded optionality / free upside: the genuine call option here is operating leverage — if the turnaround lifts EBITDA margin back toward the high-teens, today’s ~80x EV/EBITDA compresses fast and the multiple normalises. Secondary: defense-electronics content on new EW / radar / UAV programs. But this optionality is what the market is already paying for above the high target — it is the reason to hold the franchise, not a reason the stock is cheap at $114. Core fair value sits around the $99–105 analyst zone.
5
Pillar Detail: Underlying Drivers
The dominant external force: government defense budgets, NATO rearmament, and the defense-electronics procurement cycle. A context pillar — it would amplify a BUY, but cannot rescue a price-driven SELL.
Primary Driver — Defense budget / NATO rearmament / EW & radar procurement
75
Horizon
Assessment
Historical (25%)
Rising US/allied defense budgets and electronic-warfare/radar demand underpinned the order book and the margin recovery.
Current (50%)
NATO 5%-of-GDP rearmament + EW/sensor procurement are direct tailwinds; macro Defense sector (XAR) rated O/O/SO. Strongly favourable.
Forward (25%)
Multi-year procurement supports double-digit growth and margin normalisation; risk is program timing / budget continuing-resolutions.
Driver 75 = Strong Tailwind → would amplify a base BUY. But the base signal is SELL (on valuation), and the driver is a tailwind — it disagrees with the SELL direction, so there is no STRONG SELL amplification, and the disagreement is exactly why the long horizon is HOLD rather than SELL.
6
Pillar Detail: Economic Alignment
How the current economy sits relative to MRCY, from the MacroEconomic report dated 2026-06-17. A context pillar — its pressure feeds amplification.
Stance: Trend-Following · Pressure: Tailwind
78
Source: sector map (MRCY is not a watchlist name) → the macro report rates Defense (XAR) O/O/SO and Industrials (XLI) O/O/SO — strong tailwinds across all horizons (NATO rearmament + reshoring). Going long rides the economic trend (Trend-Following), conviction 78. Macro report date 2026-06-17 (fresh).
Amplification: the Tailwind pressure would amplify a BUY, not a SELL. Because the base signal is a valuation-driven SELL, the supportive economy is recorded as a caveat against the SELL — reinforcing that this is “great backdrop, wrong price,” and supporting the long-horizon HOLD.
7
Pillar Detail: Entry/Exit Timing
Why Timing scored 58: a powerful, intact uptrend (price above all moving averages, +64% over six months) that is now overbought (monthly RSI 73) and butting against the 52-week high with daily momentum just starting to roll.
Entry/Exit Timing — Pillar Score
Good trend, poor entry. Strong multi-timeframe uptrend, but overbought and extended into the 52-week high with the daily MACD just turning down — the opposite of a low-risk entry.
Monthly RSI 73, weekly 68 (overbought); daily MACD histogram just turned negative near the high.
Relative strength
+64% over 6 months, well ahead of SPY and the sector ETF.
Position-risk
At the 52-wk high ($122.17 just above); above all analyst targets — poor risk-reward for a new entry.
Macro overlay
Defense in favour; VIX ~16; low beta (0.95). Favourable backdrop.
Catalysts
No earnings within 14 days (FY Q4 ~early Aug). Calm window.
8
Economic Event Risk
High-impact macro over the next ~2 weeks. MRCY has low direct macro sensitivity (β 0.95; its driver is the defense budget) — the main near-term risk is its own FY Q4 print and the broad risk-on/off regime.
Date
Event
Impact
Relevant?
Why
2026-06-25
US Core PCE (May)
High
⚠ Low–Med
Regime test; low-beta defense names are less exposed, but a risk-off turn could pressure an extended winner.
~early Aug
MRCY FY Q4 2026 earnings
High (company)
✅ Yes
The key event: margin trajectory, FY27 guide, book-to-bill. A guidance miss into this rich multiple is the main downside risk.
No high-impact MRCY-specific economic release inside 3 days. The defense/NATO macro backdrop (XAR O/O/SO) remains a tailwind; the risk is company-specific valuation, not the macro tape.
9
Multi-Timeframe Technical Analysis
Trend, RSI and breakout status across five timeframes. A strong, intact uptrend that is overbought and extended into the 52-week high.
Timeframe
Trend
RSI
MACD
Key S/R
Breakout
Vol
Monthly
Uptrend ↑
73 (OB)
+, rising
S $40 · R $103.84
Resist. breakout
0.8x
Weekly
Uptrend ↑
68
+, rising
S $73 · R $103.84
Resist. breakout
0.8x
Daily
Strong Up ↑
62
+, rolling
S $90 · R $118.6/$122.2
Resist. breakout
0.9x
Hourly
Pullback →
46
flat
S $111.7 · R $122.2
—
low
15-min
Pullback →
45
−
S $109.6 · R $116
—
low
Confluence
Bullish but overbought (monthly RSI 73) and extended into the $122 high / above all analyst targets — strong trend, poor entry. SMA50 $94 / SMA200 $83 are the pullback supports.
10
Price Chart (6-Month Daily)
A 6-month daily close line with SMA50 overlaid — the ~$70-to-$122 advance and the current consolidation just below the 52-week high.
11
Scenario Summary
Bull, Base and Bear 12-month paths. The base case sees the stock digesting its big run back toward the analyst-target zone.
Bull · 30% · $130+
Margins inflect faster than modeled, FY27 guide raised, defense order flow accelerates; multiple stays elevated and analysts chase targets up.
Base · 45% · $98–108
Turnaround continues but the stock mean-reverts toward the $99–105 analyst zone as the rich multiple normalises against still-modest near-term earnings.
Bear · 25% · $80–90
A guidance miss / margin stall into ~80x EV/EBITDA triggers a de-rate; retest of SMA50 ($94) then SMA200 ($83).
Probability-weighted central tendency ≈ $100–105 — roughly the analyst median/consensus and ~8–12% below the current $114, consistent with the SELL/trim short-medium call.
12
Entry / Exit Rules
Mechanical conditions. With the stock above every analyst target, no entry rule is met; the profit-take/trim rule is active for existing holders.
Entry Rules (for new positions)
Rule 1 (Valuation): Consider only if price pulls back below ~$100 (toward consensus/median fair value) AND no earnings within 7d. NOT MET ($114.44 > $109 high target).
Rule 2 (Technical): Buy a pullback that holds SMA50 (~$94) with RSI resetting to 40–55 and MACD turning back up. NOT MET (price extended above SMA50; RSI overbought).
Rule 3 (Catalyst): Post-FY-Q4 beat with raised FY27 guide on >1.5x volume. PENDING (~early Aug).
Exit / Trim Rules (for holders)
Profit-take / trim: price above the consensus target ($98.6) and the high target ($109) with RSI >70. TRIGGERED — trim into strength is warranted at $114.
Stop / de-rate: close below SMA50 (~$94) for 2 days would confirm the mean-reversion; below SMA200 ($83) breaks the trend.
Thesis invalidation: margin recovery stalls or FY27 guide is cut — the turnaround premium would unwind quickly at ~80x EBITDA.
Imagine you act at the current price $114.44 · as of 18 Jun 2026
What if you bought now?
You’re paying above every analyst target — risking ~$9–15 (−8% to −13%) of mean-reversion to gain only the bull-case delta.
Risking: a de-rate to the $99–105 fair-value zone (base case, −8% to −13%) or the $80–90 bear path (−21% to −30%); you’d be buying overbought, at the 52-wk high, above the high target.
Gaining: exposure to a quality defense turnaround with a real NATO tailwind and operating-leverage optionality — but only the +14% bull-case gap to ~$130 above what’s priced.
Read: poor risk-reward at $114. Wait for a pullback toward SMA50 (~$94) or the $99–105 zone — the business is worth owning, this price is not worth chasing.
What if you sold / trimmed now?
You’d lock in gains above fair value and the profit-take rule is actually triggered at $114.
Protecting: the run-up — selling above the highest analyst target captures the mean-reversion risk; you sidestep an ~80x-EBITDA de-rate on any guidance wobble.
Giving up: the bull-case continuation to ~$130 and the long-run compounding if the franchise grows into the multiple — hence trim, don’t necessarily exit fully.
Read: a mechanical trim is justified (profit-take rule met). Long-term holders can keep a core position for the driver/turnaround; new money should wait.
13
Position Sizing Context
No risk budget or portfolio role was specified, so position sizing is not computed. Volatility context below.
Position sizing not computed — specify your portfolio allocation and role for sizing guidance. Volatility context: β ≈ 0.95 (roughly market-like — far calmer than typical small-cap defense names); daily ATR ~$6.4 (~5.5% of price). The risk here is valuation/mean-reversion, not day-to-day volatility.
14
Calibration Snapshot
Machine-readable snapshot saved alongside this report as calibration-MRCY-20260618-0915.json for next-run deltas and the watchlist monitor.
Audit trail of the data behind this report and its confidence impact.
✓ get_company_profile, get_financial_ratios, get_income_statement (6q), get_ratings_snapshot — OK
✓ get_multi_timeframe_analysis, get_stock_prices (6mo), get_price_target_consensus, get_grades_consensus, get_stock_grades, get_analyst_estimates — OK
⚠ get_earnings_calendar / news not separately pulled this run; next earnings (~early Aug) inferred from the fiscal cadence (FY ends late June; Q3 reported 5 May).
Confidence impact: Overall confidence 55% (min of the three fundamental pillars). The dominant, well-evidenced finding is that price ($114.44) exceeds every analyst target (high $109) — a high-confidence Valuation-Ceiling trigger. Turnaround status caps Quality/Timing confidence. Economic Alignment uses the fresh 2026-06-17 MacroEconomic report (sector map). Fact-check: price $114.44, ISIN US5893781089, Q3'26 rev $235.8M (+11.5%), EBIT +$4.6M, targets $98.6/$105/$109, shares ~59M — all confirmed against pulled data.
DISCLAIMER: This is a quantitative framework for educational purposes only. It is not financial advice. Always do your own research and consult a licensed financial advisor before making investment decisions.