Archrock's Strategic Position in U.S. Natural Gas Growth: Valuation Attractiveness and Long-Term Infrastructure Leverage

The U.S. natural gas sector is undergoing a transformative phase, driven by surging demand from power generation, liquefied natural gas (LNG) exports, and the energy needs of data centers fueled by artificial intelligence and cloud computing. At the heart of this evolution is Archrock (AROC), a midstream energy services provider that has positioned itself as a critical enabler of natural gas infrastructure. With a compelling valuation profile and strategic investments in high-growth assets, Archrock offers investors a unique blend of near-term financial discipline and long-term leverage to the energy transition.

Valuation Attractiveness: A Discount to Peers

Archrock’s valuation metrics suggest it is undervalued relative to its peers in the Energy Equipment & Services sector. As of September 2025, the company trades at a trailing price-to-earnings (P/E) ratio of 18.62–18.90 and a price-to-book (P/Book) ratio of 3.05–3.11, significantly below the sector average. Its enterprise value-to-EBITDA (EV/EBITDA) ratio of 10.03–10.09 further underscores its affordability, particularly when compared to peers that trade at multiples exceeding 12x EV/EBITDA [1][3]. According to a report by MacroAxis, Archrock’s enterprise value is 82.86% lower than the sector average, reflecting a potential mispricing given its strong operational performance and growth trajectory [5].

This discount is not a reflection of weakness but rather a function of market skepticism toward midstream energy services. However, Archrock’s recent financial results—including a 41% year-over-year increase in contract operations revenue and a 52% jump in adjusted gross margin—demonstrate its ability to convert infrastructure demand into profitability [2]. With a leverage ratio of 3.3x and $675 million in liquidity, the company is well-positioned to fund growth while maintaining a robust balance sheet [2].

Strategic Infrastructure Leverage: NGCS Acquisition and Permian Expansion

Archrock’s most significant strategic move in 2025 was the $357 million acquisition of Natural Gas Compression Systems, Inc. (NGCS), completed in May. This transaction added 351,000 horsepower to Archrock’s fleet, including 78,000 horsepower of electric motor drive compression equipment, and expanded its total operating horsepower to over 4.5 million [1][4]. Crucially, 71% of NGCS’s compression capacity is concentrated in the Permian Basin, a region central to U.S. shale production and a key hub for LNG export infrastructure. The acquisition immediately accreted to Archrock’s earnings per share and cash available for dividends, with CEO Brad Childers emphasizing its role in meeting “elevated customer demand for low-carbon solutions” [1].

The Permian Basin’s strategic importance cannot be overstated. As the U.S. Energy Information Administration (EIA) notes, natural gas production is projected to grow by nearly 2 billion cubic feet per day annually through 2026, driven by LNG exports and power generation needs [2]. Archrock’s expanded footprint in the Permian aligns with this trend, particularly as new pipeline projects like the Blackcomb Pipeline (2.5 Bcf/day capacity) aim to alleviate takeaway constraints and support Gulf Coast LNG terminals [4].

Long-Term Leverage to Natural Gas Demand

Beyond the Permian, Archrock is poised to benefit from structural shifts in natural gas demand. The EIA forecasts that data centers—powered by AI and cloud computing—will drive an incremental 3.3 billion cubic feet per day of natural gas demand by 2030, necessitating 6.1 billion cubic feet per day of new pipeline capacity [4]. Archrock’s electric compression capabilities, which reduce methane emissions and align with decarbonization goals, position it to capture a disproportionate share of this growth.

Moreover, the company’s contract compression backlog—bolstered by the NGCS acquisition—ensures visibility into future cash flows. With 2025 adjusted EBITDA guidance raised to $810–$850 million, Archrock’s financial performance reflects confidence in sustained demand [2]. Its commitment to capital returns, including a 41% increase in quarterly dividends and $28.8 million in share repurchases in Q2 2025, further strengthens its appeal to income-focused investors [2].

Conclusion: A Dual-Engine Growth Story

Archrock’s combination of an attractive valuation and strategic infrastructure investments creates a compelling case for long-term investors. While its P/E and EV/EBITDA multiples suggest it is undervalued relative to peers, its operational expansion—particularly in the Permian Basin and electric compression—positions it to capitalize on the U.S. natural gas boom. As LNG exports and power generation drive demand, Archrock’s ability to deliver both earnings growth and capital returns makes it a standout in the midstream sector.

**Source:[1] Archrock to Acquire Natural Gas Compression Systems, Inc. [https://investors.archrock.com/news/news-details/2025/Archrock-to-Acquire-Natural-Gas-Compression-Systems-Inc/default.aspx][2] Archrock Reports Second Quarter 2025 Results and Raises 2025 Financial Guidance [https://investors.archrock.com/news/news-details/2025/Archrock-Reports-Second-Quarter-2025-Results-and-Raises-2025-Financial-Guidance/default.aspx][3] Archrock, Inc. (AROC) Valuation Measures & Financial Statistics [https://finance.yahoo.com/quote/AROC/key-statistics/][4] Upcoming Natural Gas Pipeline Projects and Their Impact [https://stanwichenergy.com/insights/upcoming-natural-gas-pipeline-projects-and-their-impact-on-deregulated-markets][5] Archrock Fundamentals in 2025 [https://www.macroaxis.com/invest/ratio/AROC]