On Thursday, Stifel maintained a positive stance on Kodiak Gas Services Inc (NYSE:KGS), increasing the stock's price target to $28 from $27 while reiterating a Buy rating. The firm's decision follows the release of Kodiak's fourth-quarter results for 2023, which aligned with Stifel's projections.
The company has also provided its standalone earnings before interest, taxes, depreciation, and amortization (EBITDA) guidance for 2024, matching the expectations set by Stifel.
Kodiak's management highlighted their ability to control costs and leverage pricing power as key factors within the provided guidance range. They noted that spot unit pricing is currently 20% to 25% higher compared to the average pricing across their fleet. Furthermore, they have the capacity to adjust pricing for approximately 30% of their fleet annually.
The company remains confident about the demand for compression services, driven by the increasing need for liquefied natural gas (LNG) throughout the decade. Despite a decline in natural gas prices, Kodiak's strategy appears to be resilient, particularly due to its focus on the Permian Basin, where the economics are heavily influenced by crude oil markets.
In justifying the raised price target, Stifel applied an 8.0x multiple to the company's 2024 estimates, which represents an increase from the previous 7.75x multiple. This adjustment reflects the firm's confidence in Kodiak's financial outlook and growth potential in the coming year.
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