Conestoga Capital Advisors, LLC on Mercury Systems, Inc.
Thesis
Mercury supplies advanced processing systems to defense and aerospace programs. Although its shares declined, the company reported record revenue, bookings and backlog, with improving margins. Conestoga sees strong underlying demand in missile defense, munitions, space and other military priorities. Resolution of the U.S. defense budget impasse could reduce the uncertainty weighing on valuation.
“We remain encouraged by improving margins, record backlog and strong demand across missile defense, munitions, space and other priority defense programs”
Key risks
- The proposed U.S. defense budget was not approved, creating funding uncertainty under a continuing resolution.
- Delays in defense procurement could postpone backlog conversion.
- Industrials and premium valuations remain exposed to rising interest rates.