RBC Capital analysts downgraded Mercury Systems, Inc. (NASDAQ:MRCY) to Sector Perform from Outperform and lowered their price target to $54 from $66.

Looking ahead to 2023, analysts believe that the defense supply chain will continue to present risks for the company. The analysts’ positive thesis on the company was based on a faster return to organic growth, coupled with more pronounced margin and free cash flow improvement.

While they do anticipate a return to organic growth in Q3/23, the analysts are concerned about the potential for margin and free cash flow acceleration in the second half of 2023 due to increased leverage, ongoing working capital challenges, and limited visibility on growth acceleration.