Wells Fargo Starts Archrock (AROC) at Overweight, 'A Play On US Nat Gas Supply Growth'

Wells Fargo analyst Michael Blum initiates coverage on Archrock (NYSE: AROC) with a Overweight rating and a price target of $30.00.

The analyst comments "A Play On US Nat Gas Supply Growth. AROC is poised to benefit from growing US gas supply (we forecast a 5% CAGR through 2031) driven by LNG, rising AI datacenter power demand, and onshoring of manufacturing. We forecast AROC to grow contract compression horsepower from 4.9MM at the end of 2025 to 6.6MM by 2031 (a 5% CAGR), supported by growth in US gas supply. Permian Positioning Could Provide Further Upside. AROC is currently the second- largest contract compression provider in the Permian with 60-80% of new bookings coming from the basin. AROC's meaningful Permian market position could drive growth in excess of broader US production if the gas/oil ratio (GOR) rises faster than anticipated. AROC Attractively Priced Vs Peers. AROC trades at a 2027E EV/EBITDA multiple of 7.0x versus 6.9x and 8.4x for peers Kodiak Gas Services (not covered) and USA Compression (not covered), respectively, despite a higher EBITDA growth forecast. We forecast AROC to grow EBITDA at a 2 year CAGR (25E-27E) of 9% vs 7% for KGS and 4% USAC (Consensus ests). AROC also has lower leverage (2.7x in 2027E vs 3.1x and 4.0x) and higher dividend coverage ratio (3.4x vs 3.1x and 1.6x) versus peers. See Exhibit 11. Evaluating Upside / Downside Scenarios. We toggled utilization rates, contract pricing and capex for upside and downside scenarios. Upside. We assume higher compression demand (6% CAGR vs 5% in base case), higher utilization (97% vs 96% in our base case) and pricing power (100 bps above annual inflation). Under this scenario, we estimate AROC would be worth $38/sh. Downside. We assume zero price inflation and utilization declining to 86%. Under this scenario, we estimate AROC would be worth $21/sh"

For an analyst ratings summary and ratings history on Archrock click here. For more ratings news on Archrock click here.

Shares of Archrock closed at $24.44 yesterday.

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