Simmons Assumes Archrock (AROC) at Neutral (Earlier)
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Simmons, a unit of Piper Jaffray, assumes coverage on Archrock (NYSE: AROC) with a Neutral rating and a price target of $12.25.
Analyst John Watson commented, "For the past several quarters, our coverage of AROC has not been active. Over that span, the company spun off its international services and global fabrication businesses and now operates as a pure-play U.S. compression company with the largest domestic fleet. We assign a Neutral rating to AROC for two reasons: i. we expect compression revenue growth to lag other NAM business lines (proppant sales, frac, etc.) given the relative resilience of Contract Operations revenues during the downturn and the high historical correlation between compression revenues and natural gas production, which we expect to grow only slightly in 2017; ii. valuation is less than compelling, especially after the stock's recent rise of ~30% post Q2 earnings. Our $12.25 PT (our valuation method is explained below) offers only ~4% upside from current levels. However, that upside excludes a dividend yield of ~3% that we expect to increase as APLP's distribution grows."
Shares of Archrock closed at $11.79 yesterday.
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