Mercury Systems (MRCY) remains well-positioned relative to defense spending trends, and the company's initial fiscal 2027 and 2028 outlooks are conservative, RBC Capital Markets said.

The company's fiscal Q4 bookings were strong, with a book-to-bill ratio of 2.3x and backlog reaching about $1.95 billion, up 38% from a year earlier. The company expects nearly $1 billion in backlog orders to be recognized in fiscal 2027, providing visibility into the annual outlook, analysts wrote in a Tuesday research report.

Bookings in recent quarters skewed toward higher-margin production programs, while RBC believes the fiscal 2027-2028 outlook does not reflect potential benefits from defense tailwinds across missiles, space and other markets, the Palantir Technologies (PLTR) partnership or several automation projects.

Investors are likely to support the incremental investments to support future growth, according to the note.

RBC reiterated its outperform rating on the stock and raised its price target to $120 from $105.

Shares of Mercury Systems were down 3.1% in Wednesday trading.

Price: 101.76, Change: -3.24, Percent Change: -3.08