Archrock to acquire NGCS in $357 million deal

HOUSTON - Archrock, Inc. (NYSE:AROC), a leading natural gas compression services provider with a market capitalization of $3.98 billion and impressive revenue growth of 16.89% over the last twelve months, has announced the acquisition of Natural Gas Compression Systems, Inc. (NGCS), a move expected to enhance Archrock’s operations and expand its footprint, particularly in the Permian Basin. According to InvestingPro analysis, Archrock maintains a robust financial health score of GOOD, supported by consistent profitability and strong operational metrics. The transaction, valued at approximately $357 million, will be a mix of cash and stock and is anticipated to be immediately accretive to Archrock’s earnings per share and cash available for dividend per share by the end of 2025. The company has demonstrated its commitment to shareholder returns through 12 consecutive years of dividend payments, currently offering a 3.35% yield. InvestingPro subscribers can access additional insights through comprehensive Pro Research Reports, which provide detailed analysis of Archrock’s financial position and growth prospects among 1,400+ top US stocks.

The acquisition will bolster Archrock’s total operating horsepower to over 4.5 million, with NGCS contributing approximately 351,000 horsepower, including a 35,000 horsepower backlog of contracted new equipment. This strategic move aligns with Archrock’s focus on large horsepower compression and will deepen its existing operations in key oil and gas regions. Notably, 71% of NGCS’s compression horsepower operates in the Permian Basin, and the acquisition is expected to increase Archrock’s compression capacity in the area by 10%, to approximately 2.5 million horsepower.

The addition of NGCS’s portfolio, which includes electric motor drive compression capabilities, positions Archrock to better serve the growing demand for lower carbon solutions. The transaction will expand Archrock’s electric motor drive compression horsepower to approximately 815,000.

Archrock plans to fund the cash portion of the deal, $298 million, through its available capacity under its ABL credit facility, while issuing up to 2.312 million new Archrock common shares to cover the remaining value. The transaction’s funding approach aligns with Archrock’s targeted leverage ratio range of between 3.0 times and 3.5 times.

Subject to customary closing conditions, the acquisition has received unanimous approval from Archrock’s Board of Directors and is expected to close in the second quarter of 2025. Financial advisors for the transaction include Citi for Archrock and Intrepid Partners, LLC for NGCS, with legal advice provided by Latham & Watkins LLP and Honigman LLP, respectively.

This acquisition is a testament to Archrock’s commitment to growth and operational excellence, as echoed by Brad Childers, President and CEO of Archrock, who stated that the integration of NGCS will enable durable, profitable growth for Archrock shareholders. With a P/E ratio of 21.53 and recent stock performance showing signs of being oversold according to technical indicators, InvestingPro analysis reveals 8 additional key investment insights available to subscribers. A.J. Yuncker, President and CEO of NGCSI, also expressed confidence that NGCS’s customers and employees will benefit from Archrock’s scale, experience, and financial strength.

The information reported is based on a press release statement.

In other recent news, Archrock reported its fourth-quarter 2024 earnings, with an adjusted earnings per share (EPS) of $0.35, surpassing the consensus forecast of $0.3005. However, revenue slightly missed expectations, coming in at $326.42 million against a forecast of $326.77 million. Stifel analysts maintained their Buy rating on Archrock, noting that the company outperformed expectations with an Adjusted EBITDA of $184 million, exceeding both Stifel’s projection and the consensus estimate. Archrock’s cash available for dividend reached $118.1 million, and the company announced a dividend per share of $0.190, marking an 8.6% increase from the previous quarter.

RBC Capital Markets raised Archrock’s stock price target from $32.00 to $33.00, maintaining an Outperform rating. This adjustment was based on a review of Archrock’s recent financial results and its strong guidance for 2025, which surpasses consensus estimates. The company’s planned capital expenditure for new units, backed by existing contracts, is seen as a mitigating factor for growth-related risks. Archrock’s strategic focus on expanding its electric motor drive compression fleet has contributed to its robust performance. The company plans significant capital expenditure in electric motor drive technology for 2025, projecting an adjusted EBITDA of $750-$790 million, a 30% increase from 2024.

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