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On Friday, Mizuho (NYSE:MFG) Securities adjusted its stance on Archrock (NYSE:AROC), a natural gas compression services company, by reducing its price target to $31.00, down from the previous $34.00. The company, currently valued at $3.92 billion, has maintained dividend payments for 12 consecutive years, with a current yield of 3.41%. Despite this change, Mizuho maintained its Outperform rating on the company's shares. According to InvestingPro analysis, the stock appears slightly overvalued at current levels.
The decision comes as the energy sector has experienced significant changes in recent weeks. Nonetheless, analysts at Mizuho believe that the natural gas compression industry, and Archrock in particular, remains in a relatively strong position. This optimism is partly due to Archrock's balance sheet, which is seen as providing the company with the capacity to pursue growth and return capital to shareholders even amid an uncertain economic environment. The company's strong financial position is reflected in its impressive 16.89% revenue growth and $560 million in EBITDA over the last twelve months. For deeper insights into Archrock's financial health and growth potential, InvestingPro offers comprehensive analysis and additional ProTips.
Mizuho's analysts have a positive outlook on Archrock's capital expenditure and mergers and acquisitions activities for the fiscal year 2025. These strategic moves are considered to be substantially derisked and are expected to lock in near-term adjusted EBITDA growth while also enhancing the company's market share in the compression sector.
The recent fourth quarter 2024 results and the acquisition of NGCS have prompted Mizuho to raise its estimates, as Archrock's near-term outlook appeared better than expected. However, the revised price target reflects a more cautious view on the future demand and pricing for compression services. This comes as the boom in associated gas compression shows signs of slowing down, leading to lower sector multiples which have influenced Mizuho's updated price target.
In other recent news, Archrock has reported its fourth-quarter 2024 earnings, revealing an adjusted earnings per share (EPS) of $0.35, surpassing the consensus forecast of $0.3005. Although revenue slightly missed expectations at $326.42 million, the company demonstrated robust performance with a 69% year-over-year increase in full-year adjusted EPS. Archrock also announced the acquisition of Natural Gas Compression Systems (NGCS) for $357 million, a deal expected to enhance its operations and expand its footprint in the Permian Basin. This acquisition is anticipated to be immediately accretive to both earnings per share and cash available for dividend per share by the end of 2025.
Citi analyst Douglas Irwin raised the price target for Archrock to $33.00, reflecting enhanced cash flow projections and a strong 2025 EBITDA guidance. RBC Capital Markets also adjusted its outlook, raising the price target to $33.00 based on the company's robust future guidance and strategic positioning in the expanding natural gas market. Stifel analysts maintained a Buy rating on Archrock with a steady price target of $27.00, following the company's strong financial performance and dividend increase. These recent developments underscore a confident outlook for Archrock, driven by strategic acquisitions and strong financial results.
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