Is USA Compression Partners (USAC) Still a Buy at Its Current Valuation?

The question of whether USA Compression Partners (USAC) remains a compelling investment hinges on a critical tension: the disparity between its intrinsic value and market price. According to Alpha Spread's 2025 intrinsic value analysis, USAC is undervalued by 36%, with an estimated intrinsic value of $39.19 per share versus a current market price of $25.04. This gap suggests potential upside for investors, but it also raises questions about the risks embedded in the stock's valuation.

Intrinsic Value: A Case for Undervaluation

Alpha Spread's methodology calculates intrinsic value as the average of discounted cash flow (DCF) and relative valuation. For USAC, this results in a DCF value of $30.60 and a relative value of $47.77, averaging to $39.19. This approach assumes stable cash flows and reasonable growth, both of which USAC has demonstrated. The company reported record third-quarter 2025 results, including $250.3 million in revenue and $34.5 million in net income, driven by strong demand for compression services in the upstream energy sector.

The intrinsic value analysis implies that the market is not fully pricing in USAC's operational strength. For instance, the company's average revenue per horsepower per month hit a record $21.06 in Q1 2025, reflecting pricing power and efficiency gains. If these trends persist, the DCF model's assumptions may prove conservative, further supporting the case for undervaluation.

Market Valuation: A P/E Puzzle

Despite the intrinsic value case, USAC's trailing P/E ratio of 30.79 as of January 8, 2026, appears elevated compared to its historical averages of 34.6 for the past four quarters and 35.7 for the 12-month period. This suggests the market may have already priced in some of the company's recent outperformance. However, peer comparisons complicate the picture. While the peer group average P/E for Q3 2025 was approximately 30.2x, USAC's P/E of 29.38 as of January 9, 2026, places it near the bottom of its peer group. This could indicate either a discount for risks not fully reflected in intrinsic value models or an opportunity for re-rating if the company continues to outperform.

Risks: Concentration and Leverage

The primary risks to USAC's valuation stem from its business model. While the company has not disclosed specific customer concentration metrics, its reliance on long-term contracts with large upstream energy companies inherently exposes it to client-specific risks. A downturn in a major client's operations or a shift in energy demand could disproportionately impact USAC's revenue. Additionally, the company's leverage ratio of 4.21x as of Q3 2025 raises concerns about financial flexibility. High debt levels could limit its ability to invest in growth or withstand a downturn, particularly in a cyclical industry like energy.

The Verdict: A Buy with Caution

USAC's 36% undervaluation, as calculated by Alpha Spread, presents an attractive entry point for investors who believe in the company's ability to sustain its operational momentum. The recent refinancing of high-cost debt and extension of maturities further strengthen its balance sheet. However, the stock's valuation must be weighed against its risks. The market's relatively low P/E ratio may already reflect skepticism about customer concentration and leverage, which could limit upside potential if these issues materialize.

For investors willing to accept these risks, USAC offers a compelling case. The intrinsic value analysis suggests significant upside, particularly if the company can maintain its pricing power and operational efficiency. Yet, prudence is warranted. Diversification of customer exposure and a reduction in leverage would enhance the stock's appeal, but until then, USAC remains a high-conviction play rather than a no-brainer.