Kodiak Gas Services stock trades at a discount but offers clear growth path – Mizuho

On Wednesday, Mizuho initiated coverage on Kodiak Gas Services Inc (NYSE:KGS) stock with an Outperform rating and a price target of $36.00. The firm highlighted the company’s potential for medium-term growth and its advantageous position within the compression industry.

Kodiak Gas Services is expected to see an approximate 8% compound annual growth rate (CAGR) in EBITDA, buoyed by industry tailwinds and a clear capital allocation strategy that allows for greater capital expenditure intensity compared to its peers.

The company’s focus on the Permian region and its relatively younger fleet are considered key differentiators that could lead to stronger growth and profit margins.

The firm endorses KGS’s aggressive growth strategy and notes that its capital allocation framework is conducive to supporting a higher capital expenditure intensity. The analyst believes that KGS’s current market valuation, which trades at a discount (6.6x projected 2026 EV/EBITDA versus the industry average of 7.5x), does not fully reflect the company’s growth prospects.

The market is expected to reassess Kodiak Gas Services as it begins to recognize the broader macro tailwinds affecting the compression industry, as well as KGS’s specific growth trajectory. The firm’s favorable view is based on the expectation that these factors will lead to a re-rating of KGS’s stock in the future.

In other recent news, Kodiak Gas Services reported robust earnings and revenue results, with an EBITDA of $154 million, closely aligning with expectations, and a projected run-rate EBITDA of $162 million after adjustments for non-recurring items. The company also increased its quarterly cash dividend by 8% to $0.41 per share.

Concurrently, Kodiak initiated a public offering of approximately 6.14 million shares by an affiliate of EQT (ST:) Infrastructure funds and announced plans to repurchase $25 million of its common stock from the selling stockholder in a separate private transaction.

Kodiak Gas Services recently filed a prospectus supplement allowing certain selling stockholders to resell up to 5,562,273 shares of its common stock. The shares are linked to the redemption of common units representing limited liability company interests in Kodiak Gas Services, LLC, a subsidiary of Kodiak Gas Services, Inc. The filing facilitates the potential resale of existing shares by certain stockholders.

Analyst firms have been positive in their assessments of Kodiak Gas Services. Citi initiated coverage on the company, assigning a Buy rating, while Redburn-Atlantic initiated coverage with a Buy rating.

RBC Capital Markets raised its price target for Kodiak, and Truist Securities increased its price target. These are recent developments for Kodiak Gas Services, reflecting the company’s strong financial performance and optimistic outlook.

InvestingPro Insights

Recent data from InvestingPro adds weight to Mizuho’s optimistic outlook on Kodiak Gas Services Inc (NYSE:KGS). The company’s revenue growth of 29.94% over the last twelve months, coupled with a robust quarterly revenue growth of 52.31% in Q2 2024, aligns with Mizuho’s projection of strong medium-term growth. This performance is particularly impressive given the company’s already substantial revenue of $982.11 million in the same period.

InvestingPro Tips highlight that KGS is trading near its 52-week high, with a remarkable 78.74% price total return over the past year. This suggests that the market is already recognizing the company’s potential, as Mizuho anticipates. Additionally, KGS boasts a high return over the last year, further supporting the analyst’s positive stance.

The company’s profitability is also noteworthy, with InvestingPro data showing a gross profit margin of 58.58% and an operating income margin of 24.52% for the last twelve months. An InvestingPro Tip confirms that KGS has been profitable over this period, reinforcing Mizuho’s confidence in the company’s financial health and growth prospects.

For investors seeking a deeper understanding of Kodiak Gas Services’ potential, InvestingPro offers 5 additional tips that could provide valuable insights into the company’s future performance and market position.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.