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USA Compression Partners LP: 17% Yield; Vital Part Of Energy Patch Is Here To Stay

Published Sat, 30 May 2020 09:15:00 -0400 on Seeking Alpha

After bottoming at $3.52 in March, USAC has bounced back to $12.
It's still down 34%, and it yields 17.5%.
Its large horsepower compression services are vital to its natural gas customers, and they're expensive for a customer to return.
We compare USAC to its two main competitors for valuations, yield and financials.
Looking for a high-yield company that has weathered previous down cycles? Take a look at USA Compression Partners (NYSE: USAC), the biggest compression service provider in the US.
USAC was founded in 1998. It has been through natural gas boom and bust cycles before, but the utilization of its horsepower fleet has been steady, averaging over 90% since 2007. Even in the Energy pullback of 2015-2017, USAC's EBITDA was stable, running between $147 and $157M annually:
(USAC site)
There are several reasons for this stability, such as the fact that aging fields require increased compression, as do shale plays, in addition to the "stickiness" of USAC's units.
When it comes to compression horsepower, size matters. These are extra large to XXX-large units, often used in multiple numbers by large power providers and other large operators. They're contracted on longer terms than the smaller units and are often renewed. A key point in this current crisis environment is that USAC's customers foot the bill for returning units under contract, which, in the case of large units, is very expensive.
(USAC site)
Add to this USAC's long history with most of its major customers - there aren't a lot of deadbeats here - it has only written off $1.8M in bad debt over the past 15 years; that's just 0.06% of total billings.
(USAC site)
All of this has led to steady EBITDA margins through the years, in up and down cycles. Note the major bump-up in revenue in 2018 and 2019. This was a result of USAC acquiring CDM, the compression operations of Energy Transfer (NYSE: ET):
(USAC site)
USAC's stability enabled it to maintain a steady... Read more

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