Archrock is Tuesday's IBD Stock Of The Day, as the oil and gas services firm has seen recent earnings skyrocket even as natural gas prices have hovered around lows. AROC shares advanced Tuesday.
U.S. natural gas prices fell 2% Tuesday, trading around $1.73 per British thermal unit. The benchmark hit a two-week low Monday. Meanwhile, natural gas producer EQT, Chesapeake Energy and others have reduced natural gas production due to low prices and high stockpiles.
However, energy companies cutting natural gas production have not appeared to affect the profitability for service provider Archrock. The Houston-based company is an energy infrastructure operation with a pure-play focus in midstream natural gas compression.
In other words, ArchRock provides compression services related to natural gas pipelines and transport, not production.
On Feb. 21, Archrock reported fourth-quarter earnings and revenue, with EPS surging 200% to 21 cents. The company has averaged 115% earnings growth over the past three quarters. Analysts expect that trend to continue through the first half of 2024. Wall Street forecasts Q1 EPS growing 120% to 22 cents and Q2 earnings jumping 50% to 24 cents per share.
Archrock Sees Strong Demand For Its Services
Chief Executive Brad Childer told analysts on the Feb. 21 earnings call that there are several "opportunities we see in the market for compression and for Archrock."
Childer pointed to record U.S. natural gas production in 2023 of 104 billion cubic feet per day. The Archrock chief executive added the company expects "growth in 2024 volumes."
Childer also pointed to "heightened capital discipline across the energy sector" as a boon for Archrock.
"Industrywide additional investment in compression, a critical piece of infrastructure needed to move gas to market is required to meet current and growing demand," he said. "For Archrock, this has created a healthy and visible backlog of customer orders."
Archrock forecasts 2024 revenue between $1.06 billion-$1.10 billion. Analysts expect sales to increase 9% to $1.08 billion.
The company added last month it has sold out of newbuild equipment for 2024 and has already started building a new order book for 2025. Childer said that 60% of Archrock's new bookings and new equipment are related to the Permian Basin.
The Permian Basin, the second largest gas-producing region in the U.S. (after the Appalachian-region's Marcellus Shale) has struggled to contain the natural gas it produces along with oil, called associated gas. When gas production outstrips storage and pipeline capacity, producers "flare off" the excess gas. A tactic that creates large amounts of greenhouses gases, and tension with regulators.
So Permian producers are hustling to increase their take-away capacity for natural gas.
"The (Permian) Basin is unrelenting right now in its demand and we're happy to provide the equipment for it," he said.
Archrock Stock Performance
AROC shares advanced 1.9% to 18.41 Tuesday during market action. Archrock stock is up around 0.8% in March but has gained 18% in 2024. The stock has booked five consecutive monthly advances, with its last monthly loss coming in September 2023 when it dropped 1.5%.
Since hitting a low of 2.09 in March 2020, Archrock has stormed ahead 769% to its current levels. AROC shares have currently formed an ascending base pattern with an official 19.42 buy point, according to the daily chart on MarketSurge.
Archrock stock has a 98 Composite Rating out of a best-possible 99. AROC stock also has a 94 Relative Strength Rating and an 81 EPS Rating.
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