Rising LNG Exports And Renewables Will Expand Compression Markets

Key Takeaways

• Advanced, emission-friendly fleet and strong capital deployment position NGS for accelerated growth, high margins, and increased market share.
  
• Rising demand and regulatory trends favor company's technology leadership, supporting premium pricing, sustainable earnings growth, and flexibility for expansion.
  
• Accelerating energy transition, regulatory and ESG pressures, customer concentration, limited tech investment, and stronger competition threaten long-term revenue, margins, and market share.

Catalysts

Provides natural gas compression equipment, technology, and services to the energy industry in the United States.

• Analyst consensus expects continued growth in rented horsepower and revenue from large units, but these projections may understate NGS's market share gains as the company's outsized capital deployment relative to major peers positions it to substantially accelerate revenue and EBITDA growth into 2026 and beyond.
  
• While consensus notes margin expansion from improved pricing, actual sustainability and extension of high rental gross margins is likely to significantly outpace expectations due to high utilization of the advanced, emission-friendly fleet, further supported by a structurally rising mix of long-term contracts, directly boosting future profitability.
  
• The surge in demand for natural gas infrastructure driven by LNG export growth, AI data center power requirements, and grid electrification is poised to meaningfully expand the addressable market for compression services, setting the stage for multi-year revenue compound annual growth well above sector norms.
  
• NGS's disciplined capital allocation and strengthening balance sheet enable accretive M&A activity and organic expansion, providing the flexibility to outcompete sub-scale or financially constrained rivals and amplify shareholder returns through higher earnings and opportunistic buybacks.
  
• The growing emphasis on environmental performance and stricter emission regulations increases the premium for next-generation, high-efficiency compression and advanced monitoring, allowing NGS-already ahead in technology adoption-to command premium pricing and rapidly capture share as the equipment replacement cycle accelerates, lifting margins and sustaining long-term earnings growth.

Natural Gas Services Group Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Natural Gas Services Group compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Natural Gas Services Group's revenue will grow by 9.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 10.9% today to 13.5% in 3 years time.
• The bullish analysts expect earnings to reach $29.0 million (and earnings per share of $2.26) by about August 2028, up from $17.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 23.9x on those 2028 earnings, up from 17.0x today. This future PE is greater than the current PE for the US Energy Services industry at 13.2x.
• Analysts expect the number of shares outstanding to grow by 0.61% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.57%, as per the Simply Wall St company report.

Natural Gas Services Group Future Earnings Per Share Growth

Risks

• The continued acceleration of the global energy transition toward renewables, combined with rising ESG pressures from investors, could erode demand for natural gas compression over the long term and restrict access to growth capital, negatively impacting revenue and future earnings growth.
  
• Increasing regulatory scrutiny of greenhouse gas emissions could drive up compliance costs and cause project delays for natural-gas-centric companies like Natural Gas Services Group, placing downward pressure on net margins.
  
• Heavy concentration in a small set of upstream oil and gas customers, particularly in the Permian, exposes the company to revenue volatility from potential customer consolidation, shifting E&P capital discipline, or decreased activity, thereby heightening top-line risk.
  
• Persistent underinvestment in next-generation low-emission or electric compression technology, as well as limited digital and automation upgrades, could undermine cost competitiveness and operational efficiency, reducing future margin expansion and earnings growth potential.
  
• Intensifying competition from larger, more diversified oilfield service companies and the emergence of alternative compression technologies (including electrification and hydrogen solutions) may compress pricing and threaten market share, leading to long-term revenue and cash flow pressure.

Valuation

• The assumed bullish price target for Natural Gas Services Group is $45.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Natural Gas Services Group's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $45.0, and the most bearish reporting a price target of just $32.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $214.9 million, earnings will come to $29.0 million, and it would be trading on a PE ratio of 23.9x, assuming you use a discount rate of 8.6%.
  
• Given the current share price of $24.36, the bullish analyst price target of $45.0 is 45.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.