Why USAC Stock Is Trading at Record Highs
Oil and natural gas prices can be volatile, which can have a big impact on the earnings of upstream and midstream energy companies. One sector of the oil and gas industry that tends to do well no matter what price energy is trading at, or where we are in the economic cycle, is equipment and services.
A company in the sector that’s been reporting record-high financial results, trading at record-high levels on the stock market, and paying high-yield dividends is USA Compression Partners LP (NYSE:USAC).
The partnership provides compression services to midstream oil and natural gas businesses, including independent gatherers, producers, processors, and transporters. It’s the third-largest provider of compression services in the U.S. (Source: “RBC Capital Markets Global Energy, Power and Infrastructure Conference,” USA Compression Partners LP, June 6, 2023.)
Together with its subsidiaries, the company provides services under fixed-term contracts in various shale plays throughout the U.S., including the Utica Shale, Marcellus Shale, Permian Basin, Delaware Basin, Eagle Ford Shale, and Mississippi Lime formation.
The best part: regardless of where oil and gas prices are, natural gas companies always need their infrastructure serviced.
Natural gas naturally loses pressure as it moves through pipelines, due to distance and friction. Compression ensures that the gas continues to move smoothly through pipelines to customers. Compressors are also used at above-ground and underground natural gas storage facilities.
This essential service has helped USA Compression Partners LP generate stable cash flows during all commodity cycles.
Why? In addition to helping people grill hamburgers and steaks, natural gas is the largest source of electricity in the U.S. and a major source of heating around the world.
Another Quarter of Record-High Revenues
One thing that USA Compression Partners LP investors never tire of hearing is the company’s announcements of record-high financial results.
So far this year, the partnership has reported record-high revenues for the first, second, and third quarters. It has also reported record-high third-quarter adjusted earnings, distributable cash flow, and distributable cash flow coverage.
For the third quarter ended September 30, USA Compression Partners announced that its revenues increased by 20.8% year-over-year to $217.1 million. (Source: “USA Compression Partners Reports Third-Quarter 2023 Results,” USA Compression Partners LP, October 31, 2023.)
The company’s third-quarter net income more than doubled year-over-year to $20.9 million. Its net cash provided by operating activities inched up in the quarter to $50.1 million, from $49.2 million in the same period last year.
The partnership’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) grew in the third quarter by 19% year-over-year to $130.2 million.
USA Compression Partners LP’s distributable cash flow climbed in the third quarter by approximately 30% year-over-year to $71.6 million. Its distributable cash flow coverage in the quarter was 1.39x, an improvement over the 1.07x figure in the third quarter of 2022.
Operationally, the company reported record-high average revenue-generating horsepower of 3.36 million, compared to 3.09 million in the third quarter of 2022. It also achieved record-high average revenue per revenue-generating horsepower per month of $19.10, compared to $17.53 in the third quarter of 2022.
Commenting on the results, Eric D. Long, USA Compression Partners LP’s president and CEO, said, “Our third-quarter achievements again featured consecutive-quarter record-setting revenues, Adjusted EBITDA, Distributable Cash Flow, and Distributable Cash Flow Coverage.” (Source: Ibid.)
He continued, “These record quarterly financial results were driven by strong operational performance including continued sequential-quarter improvements to fleet utilization and per-horsepower average revenue, as well as record average revenue-generating horsepower of approximately 3.36 million.”
There’s every reason to believe that USA Compression Partners LP’s momentum will continue in the fourth quarter and in 2024. For full-year 2023, the company expects to report:
- Net income in the range of $73.0 to $83.0 million, up from $30.3 million in 2022
- Adjusted EBITDA in the range of $500.0 to $510.0 million, up from $425.9 million in 2022
- Distributable cash flow in the range of $270.0 to $280.0 million, up from $221.5 million in 2022.
USA Compression Partners LP Has Never Missed or Lowered Its Dividends
USA Compression stock is a great play for dividend hogs. The company has a long history of paying high-yield dividends. It has paid dividends for 43 consecutive quarters and has never cut its distribution.
Since its initial public offering (IPO) in 2013, USAC stock has returned cash in excess of $1.6 billion to unitholders. Furthermore, over that time frame, the partnership has improved its distribution coverage. (Source: “Distributions & Splits,” USA Compression Partners LP, last accessed November 6, 2023.)
As of this writing, USA Compression stock pays dividends of $0.525 per unit, for a trailing annual yield of 8.52%. That’s more than twice the current U.S. inflation rate of 3.7%. USAC stock’s five-year average dividend yield is 13.91%.
USA Compression Stock Trading at Record-High Levels
The only thing better than a stock that pays reliable, high-yield dividends is a stock with a share price that has been trending steadily higher.
USA Compression Partners LP’s high dividend yield isn’t a result of a lower share price; USAC stock has been trading at record-high levels. USA Compression stock hit a new record intraday high of $26.06 on October 19, and it continues to trade near those levels.
Trading at $25.12 as of this writing, shares of USA Compression Partners LP are up by:
- 30% over the last three months
- 42% year-to-date
- 43% year-over-year
- 23% since I last wrote about USAC stock, which was in June
Chart courtesy of StockCharts.com
The Lowdown on USA Compression Partners LP
USA Compression Partners is an energy company that provides essential natural gas compression services across geographically diverse operating areas. This helps it generate secure, stable cash flows, which provide durable returns on invested capital.
The company continues to report tremendous financial results, which include record-high revenues, adjusted EBITDA, distributable cash flow, and distributable cash flow coverage.
The outlook for USA Compression Partners LP is robust, with its customers lengthening their contracts and increasing their volumes. Moreover, the company has been increasing its fleet utilization, improving its contract pricing, and maintaining capital discipline.
This should help the partnership improve its financial flexibility, fund capital investments, reduce its debt, and continue paying one of the most reliable, high-yield dividends in its industry.