USA Compression Partners LP (USAC): A Deep Dive into Its Performance Potential
Long-established in the Oil & Gas industry, USA Compression Partners LP (NYSE:USAC) has enjoyed a stellar reputation. It has recently witnessed a daily gain of 11.53%, juxtaposed with a three-month change of 36.64%. However, fresh insights from the GF Score hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of USA Compression Partners LP.
Understanding the GF Score
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
Financial strength rank: 3/10
Profitability rank: 6/10
Growth rank: 3/10
GF Value rank: 3/10
Momentum rank: 10/10
Based on the above method, GuruFocus assigned USA Compression Partners LP the GF Score of 67 out of 100, which signals poor future outperformance potential.
USA Compression Partners LP: A Snapshot
USA Compression Partners LP, with a market cap of $2.48 billion, provides compression services in the United States in terms of total compression fleet horsepower to customers relating to infrastructure applications. These applications include both allowing for the processing and transportation of natural gas through the domestic pipeline system and enhancing crude oil production through artificial lift processes. The company operates in several shale plays throughout the U.S., including the Utica, Marcellus, Permian Basin, Delaware Basin, Eagle Ford, and others. With sales of $773.77 million and an operating margin of 26.8%, the company engineers, designs, operates, services, and repairs its compression units, and maintains related support inventory and equipment.
Financial Strength Analysis
USA Compression Partners LP's financial strength indicators present some concerning insights about the company's balance sheet health. The company's interest coverage ratio of 1.34 positions it worse than 90.1% of 768 companies in the Oil & Gas industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. It's worth noting that the esteemed investor Benjamin Graham typically favored companies with an interest coverage ratio of at least five.
The company's Altman Z-Score is just 1.1, which is below the distress zone of 1.81. This suggests that the company may face financial distress over the next few years. Additionally, the company's low cash-to-debt ratio at 0 indicates a struggle in handling existing debt levels. The company's debt-to-equity ratio is 8.28, which is worse than 98.07% of 829 companies in the Oil & Gas industry. A high debt-to-equity ratio suggests over-reliance on borrowing and vulnerability to market fluctuations. Additionally, the company's debt-to-Ebitda ratio is 4.98, which is above Joel Tillinghast's warning level of 4 and is worse than 80.79% of 713 companies in the Oil & Gas industry. Tillinghast said in his book Big Money Think's Small: Biases, Blind Spots, and Smarter Investing that a high debt-to-Ebitda ratio can be a red flag unless tangible assets cover the debt.
Growth Prospects
A lack of significant growth is another area where USA Compression Partners LP seems to falter, as evidenced by the company's low Growth rank. The company's revenue has declined by -0.1 per year over the past three years, which underperforms worse than 70.19% of 862 companies in the Oil & Gas industry. Stagnating revenues may pose concerns in a fast-evolving market. Lastly, USA Compression Partners LP predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.
Conclusion
Given the company's financial strength, profitability, and growth metrics, the GF Score highlights the firm's unparalleled position for potential underperformance. While USA Compression Partners LP has a commendable history in the Oil & Gas industry, its current financial health and growth prospects may not support sustained outperformance. Therefore, investors should exercise caution and conduct thorough research before making investment decisions.
GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen
This article first appeared on GuruFocus.
