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Investing.com -- Wells Fargo initiated coverage of Archrock Inc with an Overweight rating and a $30 price target, citing the contract compression provider’s leverage to rising U.S. natural gas supply.
The brokerage said it sees about 20% total return potential, factoring in a 4% dividend yield, 14% dividend growth and 2% buybacks.
Archrock, the second-largest compression provider in the Permian Basin, is positioned to benefit from a forecast 5% compound annual growth rate in U.S. gas supply through 2031, supported by liquefied natural gas demand, AI data center power needs and onshoring of manufacturing.
Wells Fargo expects Archrock’s compression horsepower to rise from 4.9 million at the end of 2025 to 6.6 million by 2031.
Its concentration in the Permian, where 60-80% of new bookings are coming from, could provide additional upside if gas-to-oil ratios increase faster than expected.
Archrock trades at 7 times estimated 2027 enterprise value to EBITDA, in line with Kodiak Gas Services and below USA Compression, despite stronger growth and lower leverage, Wells Fargo noted.
The bank projects Archrock’s EBITDA will grow at a 9% compound annual rate between 2025 and 2027, compared with 7% for Kodiak and 4% for USA Compression.
In a bullish scenario, Wells Fargo valued Archrock at $38 a share, while a downside case assuming weaker utilization and no pricing power would imply $21. Key risks include lower gas demand, tougher competition, and grid-related constraints on part of its fleet.