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Analyst Blog

On Jul 18, Zacks Investment Research upgraded Natural Gas Services Group Inc. to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

This natural gas compression equipment and industrial flare systems provider delivered positive earnings surprises in two out of the last three quarters with an average beat of 14.9%.

Natural Gas Services is expected release its second quarter earnings results in the next month. Our earnings projection for the quarter is presently pegged at 28 cents, reflecting a projected year-over-year growth rate of 16.7%.

The company is doing well in its core rental business, which contributed 67% to the Natural Gas Services revenue in the first quarter. In addition, the 60-40 breakdown of its assets in dry gas and oil producing areas has added to its advantage. The rental contract received by the company in the first quarter is the highest since 2008.

Positive movements could also be noticed in oil shale installments, which will boost the rental business of the company. Presently about 40% of Natural Gas Services Group’s equipment is deployed in oil shales and liquids-oriented plays, up from about 1/3 of the fleet last quarter.

Moreover, the decision to expand its operation in other reserve rich basins has benefited the company and will continue to provide handsome returns going forward.

The present valuation of the company also makes it attractive. The forward price/earnings (P/E) multiple of 20.84x is lower than the peer group average of 22.86x, reflecting a discount of 8.9%. The Return on Equity (ROE) of the company is 7.6%, which is higher than the industry average of 6.5%.

Other Stocks to Consider

Besides Natural Gas Services Group, Dril-Quip, Inc. , FMC Technologies, Inc. and USA Compression Partners LP also have a favorable Zacks Rank among others operating in the industry.  Dril-Quip currently has a Zacks Rank #1 (Strong Buy) while FMC Technologies and USA Compression Partners presently carry a Zacks Rank #2 (Buy).

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