USA Compression

USA Compression Partners LP receives a 3-star quantitative star rating, illustrating our stance that this share class is a balanced choice, but prudent investors should consider looking elsewhere. The stock currently trades at a 4% discount to our quantitative fair value estimate of $26.45 per share, which is reinforced by this estimate's low uncertainty rating.

The firm's favorable dividend structure bolsters our quantitative valuation. Dividends represent a stable form of future cash flows returned to shareholders, reducing the perceived risk of a business. For example, the firm's forward dividend yield of 8.2% ranks in the top 10% compared with peers globally. Expected dividend payments over the coming year relative to the current share price are favorable, which contributes to our view that shares are undervalued.

The firm's profitability is an additional encouraging factor. Highly profitable companies are often more resilient in recessions and are likely to generate stronger future cash flows for shareholders. The firm's EBITDA margin of 56.7%, for example, sits in the top 10% compared with global peers. This company's ability to turn revenue into cash flow is bolstered by its solid EBITDA margin, which is wider than peers. This characteristic further promotes our favorable price/fair value ratio.

In addition to the aforementioned drivers, our model considers momentum as part of its comprehensive analysis. This share class has outperformed the broader universe over the past year. While we believe the stock is undervalued, this outperformance had a negative impact on our valuation estimate.

The company's narrow quantitative moat rating indicates it could outearn its cost of capital and maintain robust margins for 10 years or longer. In addition, the company's moderate financial health score is decent and doesn't seriously concern us with regard to financial distress.