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Archrock Jumps 40% YTD: Too Late to Bet on the Gas Compression Stock?
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Key Takeaways
Archrock stock has jumped 39.6% YTD, outperforming industry peers like EQT and Antero Resources.
Strong natural gas demand, LNG exports and data center growth are boosting compression service needs.
Archrock's 95% utilization, fee contracts and 4.9x dividend coverage support stable cash flows.
Archrock Inc. (AROC - Free Report) has jumped 39.6% year to date (YTD), outperforming the industry’s 37.8% rally. EQT Corporation (EQT - Free Report) and Antero Resources (AR - Free Report) have gained 5.9% and 5.5%, respectively, in the same period, underperforming AROC. The fate of all three companies is primarily dependent on clean energy demand.
Image Source: Zacks Investment Research
Considering the backdrop, should investors bet on AROC right away? Before coming to the investment conclusion, one should have a thorough assessment of the company’s fundamentals, growth potential and prevailing market conditions.
Archrock Set to Gain From Clean Energy Momentum
To combat climate change, the world is gradually demanding cleaner fuel, which is boosting demand for natural gas. The increasing number of data centers across the globe requires massive amounts of natural gas-driven electricity. Mounting U.S. LNG exports reflect rising demand for the commodity from different corners of the world. The business outlook appears highly favorable for companies like Archrock, which provide natural gas compression services.
Investors should note that in its latest short-term energy outlook, the U.S. Energy Information Administration stated that it expects the natural gas spot price to be $3.67 per million BTU for 2026, higher than $3.53 per million BTU last year. Higher prices are likely to aid the gas exploration and production activities. This, in turn, will aid the demand for natural gas compression services.
AROC is already locked in fee-based contracts with premium customers, which depicts a stable business model. Given the increasing demand for its services and fee-based contracts, Archrock will likely continue to generate handsome cash flows for shareholders.
The company’s dividend coverage of 4.9x is lucrative. Thus, its dividend payment will be sustainable, even if the business environment turns unfavorable.
Shareholders will likely continue to get rewarded through both dividend payments and repurchases, considering the high demand for the company’s equipment and services. The strong demand is reflected in Archrock’s utilization rate remaining above 95% for 11 quarters in a row.
Image Source: Archrock Inc.
Should Investors Bet on the Stock?
Considering the backdrop and mounting clean energy demand, investors are willing to pay a premium for the stock. AROC is currently considered expensive on a relative basis, trading at a 10.22x trailing 12-month Enterprise Value to Earnings Before Interest, Taxes, Depreciation and Amortization (EV/EBITDA), which is a premium compared with the broader industry average of 9.72x. AROC is also expensive compared with companies like EQT and Antero Resources.
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Archrock Jumps 40% YTD: Too Late to Bet on the Gas Compression Stock?
Key Takeaways
Archrock Inc. (AROC - Free Report) has jumped 39.6% year to date (YTD), outperforming the industry’s 37.8% rally. EQT Corporation (EQT - Free Report) and Antero Resources (AR - Free Report) have gained 5.9% and 5.5%, respectively, in the same period, underperforming AROC. The fate of all three companies is primarily dependent on clean energy demand.
Considering the backdrop, should investors bet on AROC right away? Before coming to the investment conclusion, one should have a thorough assessment of the company’s fundamentals, growth potential and prevailing market conditions.
Archrock Set to Gain From Clean Energy Momentum
To combat climate change, the world is gradually demanding cleaner fuel, which is boosting demand for natural gas. The increasing number of data centers across the globe requires massive amounts of natural gas-driven electricity. Mounting U.S. LNG exports reflect rising demand for the commodity from different corners of the world. The business outlook appears highly favorable for companies like Archrock, which provide natural gas compression services.
Investors should note that in its latest short-term energy outlook, the U.S. Energy Information Administration stated that it expects the natural gas spot price to be $3.67 per million BTU for 2026, higher than $3.53 per million BTU last year. Higher prices are likely to aid the gas exploration and production activities. This, in turn, will aid the demand for natural gas compression services.
AROC’s Resilient Model, Healthy Coverage, Robust Utilization
AROC is already locked in fee-based contracts with premium customers, which depicts a stable business model. Given the increasing demand for its services and fee-based contracts, Archrock will likely continue to generate handsome cash flows for shareholders.
The company’s dividend coverage of 4.9x is lucrative. Thus, its dividend payment will be sustainable, even if the business environment turns unfavorable.
Shareholders will likely continue to get rewarded through both dividend payments and repurchases, considering the high demand for the company’s equipment and services. The strong demand is reflected in Archrock’s utilization rate remaining above 95% for 11 quarters in a row.
Image Source: Archrock Inc.
Should Investors Bet on the Stock?
Considering the backdrop and mounting clean energy demand, investors are willing to pay a premium for the stock. AROC is currently considered expensive on a relative basis, trading at a 10.22x trailing 12-month Enterprise Value to Earnings Before Interest, Taxes, Depreciation and Amortization (EV/EBITDA), which is a premium compared with the broader industry average of 9.72x. AROC is also expensive compared with companies like EQT and Antero Resources.
Thus, it’s worth paying a premium price for AROC, and investors should bet on the stock right away. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.