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Archrock (AROC) to Acquire Elite Compression for $410 Million

Zacks Equity Research

Archrock, Inc. AROC is set to acquire Texas-based Elite Compression Services, LLC in a cash-and-stock deal valued at $410 million. The Houston-based energy infrastructure company will pay approximately $205 million in cash and issue 21.66 million new shares to fund the deal. Subject to satisfactory closing conditions and regulatory approvals, the deal is set for closure in third-quarter 2019.

Per the deal, Archrock — which is focused on midstream natural gas compression — will receive Elite's large horsepower compression assets amounting to 430,000, majority of which are already contracted for more than three years with blue chip companies. Post the conclusion of the deal, Archrock expects to realize $55 million of annualized adjusted EBITDA, including cost synergies of $5 million. The deal is expected to be accretive to earnings and cash flows of the firm, as well as boost basin density across core U.S. shale plays. This move is likely to support the company’s goal of reducing leverage and maintaining adequate dividend coverage.

Concurrently, Archrock will also offload 80,000 active and idle compression horsepower assets to Houston-based Harvest Midstream Co. for $30 million in cash. This will further standardize Archrock’s portfolio.

Zacks Rank and Key Picks

Archrock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.        

Some better-ranked players in the energy space include Enterprise Products Partners L.P. EPD, Helix Energy Solutions Group, Inc. HLX and Plains Group Holdings, L.P. PAGP, each sporting a Zacks Rank #1.

Enterprise Products surpassed estimates in each of the trailing four quarters, with the average being 17.03%.

Helix delivered an average positive earnings surprise of 71.88% in the preceding four quarters.

Plains Group posted average positive earnings surprise of 62.68% in the preceding four quarters.

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