Natural Gas Services Group, Inc. (NGS), a provider of compressors to the natural gas industry, has surprised on estimates 4 quarters in a row by an average of 18.70% despite difficult economic conditions as natural gas prices have plunged. The company is trading with a forward P/E of 12.66.
Company Description
Natural Gas Services Group manufactures, maintains and rents natural gas compressors that assist with the production of natural gas wells.
The company also sells custom fabricated compressors and sells flare systems for gas plant and production facilities. NGS has manufacturing facilities in Tulsa, OK, Lewiston, MI and Midland, TX.
NGS Surprised by 19.23% in the First Quarter
On May 8, Natural Gas Services Group reported first quarter 2009 results that easily beat Wall Street estimates by 5 cents a share. Earnings per share rose 7% to 31 cents from 29 cents in the year ago period. Analysts had been looking for 26 cents.
Revenue rose 6% to $20 million from $18.9 million in the first quarter of 2008. The growth was due to a 42% rise in rental revenue which offset the 28% decline in sales revenue.
Rental revenue grew to $12.8 million from $9 million in the year ago quarter. The company said its been able to control its costs and maintain or increase its margins in the rental segment.
Rental gross margin as a percent of revenue was 63%, up 1% from the year ago period.
NGS expanded its rental compressor fleet by 39 new units in the first quarter. The company now operates 1,769 units with a utilization rate in the first quarter of 82%.
Natural Gas Prices Plunged
The natural gas industry has been hammered by the swift decline in natural gas prices over the last year.
The Department of Energy is predicting an average Henry Hub spot price of $4.24 in 2009 which is down from the prediction of $8.17 and then $5 it made just 6 months ago. The spot price averaged $9.13 in 2008.
NGS has been cutting costs in the last two quarters but organic growth has been limited due to the recession. The company said on its conference call it saw no growth in its market and any growth is just taking a share from competitors.
Outlook for 2009
The company didn’t provide earnings or revenue guidance for 2009. But there appears to be a light at the end of the tunnel for improvement in business in the natural gas industry.
“I think Q2 and Q3 will be difficult but feel that the back end of Q3 or the front end of Q4 will be the trough and we will start to see improvement the latter part of this year or the first part of 2010,” said Stephen Taylor, CEO and President, on the first quarter conference call.
Consensus Estimates Hold
Second quarter and full year estimates have held steady over the last 60 days. Second quarter consensus is holding at 23 cents.
Full year consensus estimates are treading water at 97 cents per share.
NGS is scheduled to report second quarter earnings on Aug 6.
Value Fundamentals
Natural Gas Services Group is a Zacks #1 Rank (strong buy) stock. It has a price-to-book ratio of 1.11. The company has a solid 1-year return on equity (ROE) of 12.36%.
