On Monday, Goldman Sachs (NYSE:GS) updated its outlook on Kodiak Gas Services Inc (NYSE:KGS), raising the stock's price target to $27.00 from the previous $24.00 while maintaining a Buy rating. The adjustment follows Kodiak's fourth-quarter earnings for 2023, which highlighted several positive developments for the company's base business.
Kodiak Gas Services reported robust gross margin levels of 66.3% in the fourth quarter, surpassing the average of 64.6% from the first three quarters of the year. This performance indicates that pricing improvements for the company's core compression assets are likely to outstrip operational expense inflation. These strong margin levels have played a significant role in the revised price target.
Additionally, the management at Kodiak Gas Services has observed a modest improvement in lead times for new unit deliveries within the compression market. However, this has not affected pricing negatively. The management also believes that potential capacity expansion by Caterpillar (NYSE:CAT), a key supplier, is aimed at markets other than compression, suggesting a continued tight supply in the market.
The company's focus remains on the impending acquisition of CSI Compressco (NASDAQ:CCLP), which is expected to close around April 1, 2024. The financial estimates from Goldman Sachs do not yet reflect the potential impact of this deal.
Goldman Sachs has adjusted its EBITDA estimates slightly upwards and capital expenditure estimates slightly downwards for Kodiak Gas Services.
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