USAC - USA Compression: Falling Behind Its Peers
2024-05-13 15:48:41 ET
Summary
- USAC is reducing growth CAPEX spending to address its high leverage ratio and improve its balance sheet.
- The company relies on growing EBITDA by efficiently deploying capital into idle units, but lead times for new equipment may put it at a disadvantage compared to competitors.
- Future growth looks challenged once idle capacity is consumed.
- Despite challenges, there is potential for USAC to grow EBITDA through contracted rate growth on existing assets and generate additional cash flows for debt repayment.
Thesis
USA Compression ( USAC ) is one of the major suppliers of major compressor equipment to the natural gas industry. This equipment provides the motive force to push the molecules through the pipeline network to its destination. The compression industry is entering a bull cycle where compression equipment is becoming scarce, coincident with continued growth in natural gas production.
Instead of leaning into this bull cycle, USAC’s management appears to be taking their foot off the gas by reducing growth CAPEX spending to “focus internally” and address the balance sheet, which currently sits at a leverage ratio of 4.27x....
USA Compression: Falling Behind Its Peers