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Why Are Analysts Bullish on Archrock Partners and USA Compression?

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Analyst recommendations

Of the analysts surveyed by Reuters, 63% rated Archrock Partners (APLP) a “buy,” and 37% rated it a “hold.” The consensus target price for APLP is $18. The stock is now trading at $17.2.

If the stock achieves its target price, it would mean a 5% price return for investors. The high number of “buy” recommendations for APLP likely reflects its stable distributable cash flows, strong coverage, and a positive outlook for the sector.

By comparison, 71% of the surveyed analysts rated USA Compression Partners (USAC) a “buy,” while 29% rated it a “hold.” The consensus target price for USAC is $19.5. The stock is currently trading at $18.3. If the stock achieves its target price, it would mean a 4% price return for investors.

Nearly 25% of analysts rated CSI Compressco (CCLP) a “buy,” while 63% rated it a “hold,” and 12% analysts rated CCLP a “sell.” The consensus target price for CCLP is $11. The stock is currently trading at $10.6. If the stock achieves its target price, it would mean a 4% price return for investors.

Notably, the fewer “buy” recommendations for CCLP likely reflect the fall in the company’s distributable cash flows and horsepower utilization rates as well as a below 1 coverage ratio.

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Outlook for compression MLPs

The expected increase in natural gas—especially shale gas—production in 2017 should bode well for these three compression master limited partnerships.

Notably, in APLP’s 3Q16 earnings release, Brad Childers, Chairman, President, and Chief Executive Officer of Archrock Partners’ managing general partner, stated: “Looking into 2017, we see indications of the market stabilizing. As a result of the work we have done to lower our cost structure and enhance our credit profile, we will be well-positioned to capitalize on growth opportunities as and when the predicted growth in US natural gas production occurs.”

Childers added the following: “We continue to expect to benefit from the increased demand for natural gas from LNG and pipeline exports, petrochemical feedstock, and power generation.”

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