Mercury Computer Systems Inc. Stock Downgraded (MRCY)

NEW YORK ( TheStreet) -- Mercury Computer Systems (Nasdaq: MRCY) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, attractive valuation levels and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow and a generally disappointing performance in the stock itself.

Highlights from the ratings report include:
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Electronic Equipment, Instruments & Components industry. The net income increased by 33.5% when compared to the same quarter one year prior, rising from $4.25 million to $5.68 million.
  • The gross profit margin for MERCURY COMPUTER SYSTEMS INC is rather high; currently it is at 53.20%. Regardless of MRCY's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, MRCY's net profit margin of 9.30% compares favorably to the industry average.
  • MRCY's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 42.94%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
  • Net operating cash flow has significantly decreased to $4.18 million or 51.53% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.

Mercury Computer Systems, Inc. designs, manufactures, and markets high-performance embedded, real-time digital signal and image processing systems and software for specialized defense and commercial computing markets. The company has a P/E ratio of 13.1, below the average computer hardware industry P/E ratio of 14.3 and below the S&P 500 P/E ratio of 17.7. Mercury Computer Systems has a market cap of $304.6 million and is part of the technology sector and computer hardware industry. Shares are down 26% year to date as of the close of trading on Friday.

You can view the full Mercury Computer Systems Ratings Report or get investment ideas from our investment research center.

-- Written by a member of TheStreet Ratings Staff

TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.
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