Usa Compression Partners LP USAC is one of the largest independent provider of compression services in terms of fleet horsepower and the recent acquisition of CDM Resource Management makes the stock attractive, according to Janney.
The Analyst
Janney's Michael Gyure upgraded Usa Compression's stock from Neutral to Buy with a fair value estimate raised from $19 to $21.
The Thesis
Usa Compression's focus in the high-volume gathering systems, processing facilities, and transportation applications mostly in high-volume gathering systems, Guyre said in a note. But the acquisition of CDM will be transformative as it will expand the company's footprint into a "more balanced" geographic exposure.
Prior to the acquisition the company guided its 2018 adjusted EBITDA to be $180 to $190 million, the analyst said. The CDM portion will contribute $160 to $170 million of adjusted EBITDA on an annualized basis before including synergies, which is expected to be at least $20 million. The current industry environment, however, could result in incremental pricing and revenue synergies as the two companies focus mostly on larger horsepower equipment.
The acquisition will also give Usa Compression a "unique set of infrastructure assets" that are both diversified in nature and offer stability and profitability from an earnings and cash flow perspective, Gyure said.
Price Action
Shares of Usa Compression were trading higher by 1 percent Monday at $17.87.
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