Barron's Says Exterran (EXH) Could Fall By As Much As 40%

Barron's published a bearish article on Exterran (NYSE: EXH) this weekend and briefly says Exterran is all pump and no gas.

Exterran has been on a roller coaster ride since the merger of Hanover Compressor and Universal Compression to form Exterran Holdings. EXH's stock has fallen from $90 to less than $13 last year. However, Barron's says the price of $25 still seems overvalued considering that the company has surplus compressors lying idle.

The building, installation, and maintenance of natural-gas compressors needs major capital investment, which Exterran has tried to solve through master limited partnerships or MLPs. However, with not many takers, Exterran is debt ridden with an idle fleet of compressors, indicating that the current price is overvalued by around 20 – 40 percent.

Despite cutting prices, EXH has still lost jobs due to stiff competition. Exterran reportedly pumped in $3.2 billion as revenue but reported a $1.6 billion loss due to heavy capital spending, an issue that the company plans to address by cutting back on capital spending.

Barron’s finds it somewhat alarming that the capital spending did not include an increase in horsepower for its compressors. Exterran also awaits the decision of the World Bank after the $500 million fiasco with the Venezuelan government on aftertax charges. Any recovery could result in a windfall for the company’s shareholders.