USA Compression Stock: 11.2%-Yielder Reports Record Q1 Results
June 15, 2023
USAC Stock Has Never Missed or Lowered a Dividend
Oil and natural gas prices can be volatile, which can have a big impact on the earnings of upstream and midstream energy companies. One industry within the energy sector that tends to do well no matter what price oil is trading at is oil and gas equipment and services. An excellent company in that industry is USA Compression Partners LP (NYSE:USAC).
USA Compression stock is one of the best-performing stocks right now. It could be perfect for income and growth.
For starters, USAC stock’s price has been thumping the broader market, up by 18.6% over the last six months and 15.5% year-over-year. Priced at $20.35 as of this writing, the stock continues to trade near record levels.
And despite the big share-price gains, USA Compression stock still has room to run. Analysts have provided a 12-month high target of $22.00, which points to potential gains of more than eight percent. That’s a far cry from some analysts’ call for the S&P 500, which is for it to decline by as much as 45%.
USAC stock has a long history of paying eyewatering dividends. It has paid dividends every quarter since it went public in 2013. Over those 41 consecutive quarters, the stock has returned $1.6 billion in cash to unitholders. (Source: “Distributions & Splits,” USA Compression Partners LP, last accessed June 9, 2023.)
USA Compression stock currently pays a dividend of $0.525 per unit, for a current yield of 11.2%. That’s more than twice the current inflation rate of 4.9%. The stock’s trailing annual dividend yield is 10.5%, and its five-year average dividend yield is 14.1%.
USA Compression Partners LP’s ultra-high-yield dividend isn’t a result of a lower share price. As noted above (and shown in the following chart), USAC stock is trading near record highs.
Chart courtesy of StockCharts.com
About USA Compression Partners LP
USA Compression provides compression services to midstream oil and natural gas companies and independent gatherers, producers, processors, and transporters. (Source: “RBC Capital Markets Global Energy, Power and Infrastructure Conference,” USA Compression Partners LP, June 6, 2023.)
The company is the third-largest provider of compression services in the U.S. Together with its subsidiaries, USA Compression provides services under fixed-term contracts in various shale plays throughout the U.S., including Delaware Basin, Eagle Ford, Marcellus, Mississippi Lime, Permian Basin, and Utica.
The best part: regardless of where oil and gas prices are, natural gas companies will always need their infrastructure serviced. That’s because natural gas loses pressure as it moves through pipelines, due to distance and friction.
Compression ensures that natural gas moves smoothly through pipelines to customers. Compressors are also used with 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 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.
Management Reported Record Revenue
One thing that USA Compression Partners’ shareholders will never tire of is hearing is announcements of record financial results.
For the fourth quarter of 2022, the company reported record results, including record revenues of $190.1 million. (Source: “USA Compression Partners Reports Fourth-Quarter 2022 Results and Provides 2023 Outlook; Achieves Record Revenues,” USA Compression Partners LP, February 14, 2023.)
The company’s fourth-quarter net income was up by 170% year-over-year, at $8.4 million. Its net cash provided by operating activities inched up by 1.2% year-over-year to $82.1 million, while its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) climbed by 14% year-over-year to $113.0 million.
For yield hogs, USA Compression Partners LP’s all-important distributable cash flow grew in the fourth quarter by an impressive 16.5% to $60.6 million. Also in the fourth quarter of 2022, USA Compression stock paid a cash distribution of $0.525 per share, which translates to coverage of 1.18 times, up from 1.02 times in the fourth quarter of 2021.
That momentum has continued in 2023, with record first-quarter revenues of $197.1 million. (Source: “USA Compression Partners Reports First-Quarter 2023 Results; Confirms 2023 Outlook; Achieves Record Revenues,” USA Compression Partners LP, May 2, 2023.)
The company’s net income soared in the first quarter by 230% year-over-year to $10.9 million. Meanwhile, its cash provided by operating activities went up by 20% year-over-year to $42.3 million, and its adjusted EBITDA climbed by 20% year-over-year to a record $118.2 million.
The company’s distributable cash flow advanced in the first quarter of 2023 by 25% year-over-year to a record $62.6 million. Also in the first quarter, USAC stock paid a cash distribution of $0.525 per share, which translated to coverage of 1.21 times, an improvement from 0.98 times in the first quarter of 2022.
“Our outstanding first-quarter results were driven by continued strengthening in market demand for the compression services that we provide and that play a vital role in supplying the energy necessary to sustain and improve the health and welfare of many,” said Eric D. Long, USA Compression Partners LP’s president and CEO.
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 its capital discipline.
For full-year 2023, the company expects to report:
- Net income in the range of $75.0 to $95.0 million, up from $30.3 million in 2022
- Adjusted EBITDA in the range of $490.0 to $510.0 million, up from $425.9 million in 2022
- Distributable cash flow in the range of $260.0 to $280.0 million, up from $221.5 million in 2022
The Lowdown on USA Compression Stock
USA Compression Partners LP is a superb company that provides essential natural gas compression services across geographically diverse operating areas. This helps it generate secure, stable cash flows that provide durable returns on invested capital.
The company reported record fourth-quarter 2022 and first-quarter 2023 revenues, record first-quarter adjusted EBITDA, record first-quarter distributable cash flow, and improved distribution coverage. These strong results are indicative of the vital importance of compression in the natural gas industry.
This—and USA Compression Partners LP’s other business developments mentioned earlier—should help improve the company’s financial flexibility, allowing it to deploy cash to fund capital investments, reduce debt, and continue paying one of the most reliable, high-yield dividends in the energy industry.
