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On Friday, Mizuho (NYSE:MFG) Securities adjusted their financial outlook for USA Compression Partners LP (NYSE:USAC), reducing the price target from $26.00 to $22.00. The firm has chosen to maintain a Neutral rating on the stock. According to InvestingPro data, USAC currently trades at a relatively high P/E ratio of 39.4x, while offering a substantial 9.15% dividend yield that has been maintained for 8 consecutive years.
The adjustment follows the company's fourth-quarter 2024 earnings report released in February, which included an initial forecast for fiscal year 2025 adjusted EBITDA ranging between $590 million and $610 million. This projection fell short of Mizuho's estimate of $606 million. InvestingPro analysis shows the company's last twelve months EBITDA reached $567.49M, with impressive revenue growth of 12.32%. Mizuho analysts noted that even after accounting for a one-time $3 million tax credit, annualizing USAC's fourth-quarter results would suggest an adjusted EBITDA for FY25 that exceeds the company's highest guidance.
Despite identifying potential areas for upside, such as stronger repricing and the earlier delivery of new units, Mizuho expressed concerns regarding the company's balance sheet. The analysts highlighted that amidst a weakening macroeconomic environment, USA Compression Partners' need to manage near-term debt refinancings could pose a challenge. The firm's revised economic forecast led them to predict less growth for USAC in fiscal years 2026 and 2027 than previously anticipated after the fourth-quarter update.
The Neutral rating was reaffirmed based on the view that USA Compression Partners may face more limited growth opportunities compared to its peers, coupled with less flexibility to navigate a slower growth environment. Mizuho's outlook suggests a cautious approach to the stock, considering the current economic conditions and the company's financial constraints.
In other recent news, USA Compression Partners, LP has seen several significant developments. Moody's Ratings upgraded USA Compression's Corporate Family Rating to Ba3, reflecting improved profitability and debt leverage, with a stable outlook. Additionally, Citi analyst Douglas Irwin raised the price target for USA Compression to $27, citing anticipated growth in the company's backlog, although maintaining a Neutral rating. In another analyst update, S&P Global revised its outlook for USA Compression to stable from positive, following the company's conservative earnings guidance for 2025, which projected modest EBITDA growth between 2% and 4%.
In terms of leadership changes, USA Compression appointed Chris Wauson as the new Chief Operating Officer and Julie A. McEwen as Vice President and Controller. Wauson's extensive experience in the natural gas compression industry is expected to bolster the company's operational capabilities. Meanwhile, McEwen, who has been with the company since 2014, will continue her role as principal accounting officer. These appointments are part of USA Compression's strategy to enhance its leadership team for future growth.
USA Compression's operational performance is supported by strong demand in the natural gas compression market, particularly in the Permian Basin. The company plans to continue building new large horsepower units, aiming to fund this growth largely through cash flow. Despite these positive developments, the company's leverage is expected to remain above 4.0x, as noted by S&P Global, due to limited growth in pricing on renewed contracts and conservative financial policies.
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