Natural Gas Services Group Pops on Analyst Upgrades

Michael Teague  |

Services provider Natural Gas Services Group (NGS) was trading up on higher than normal volume throughout Thursday’s session after Wunderlich raised its price target for the the midstream service provider’s stock from $34 to $40, and reiterated the buy rating it gave last October.

NGS makes its money from the manufacture, sale, and installation of compressor units and equipment for natural gas pipelines. Compression units are an absolutely vital link in the broader energy industry value chain, as they provide the pressure necessary for oil and gas to continue moving through the nation’s 2.6 million miles of pipelines.

The $400 million Midland, Texas-based firm is a niche midstream play due to the fact that its business is devoted almost entirely to manufacturing and selling compression units specifically for natural gas. It is also a shale play, as its compressors are designed primarily to move gas from unconventional reserves such as coal bed methane, gas shale, and tight gas.

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Shares for NGS have been climbing steadily over the last year, and with today’s upgrade and new 52-week high have nearly doubled in price over that time. The company is uniquely situated as a specialist in natgas compression services, given that the vast majority of the shale plays are gas-based.

Furthermore, if the natural gas industry is to remain profitable enough to survive the oversupply that has resulted from shale production, especially as we head into the warmer part of the year, pipelines and pipeline infrastructure will be a crucial part of the equation. As it is, much of the US’s energy transportation infrastructure is old or simply just doesn’t exist, and it is more or less impossible (or prohibitively expensive) to transport gas any other way than through pipes.

As the shale boom continues to unfold, stockpiles of gas will increase, and there has been increasing concern of late about how quickly and to what extent gas prices will drop. In the worst case scenario, a good number of companies might need to be shaken out. But NGS has been performing well for some time, increasing profits and revenues consistently for the last two years at least, and its niche specialization will likely keep sending the stock further up and provide the firm with some protection against a downturn.

Ahead of Thursday’s closing bell, shares for the equipment and services provider had cooled slightly, paring gains back to 6.25 percent, or $34.31 per share.

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