VIDEO Many energy stocks remain firmly in favor as elevated crude prices provide another catalyst for the sector. WTI crude is hovering near $90 per barrel amid renewed Middle East supply concerns, while the Energy Select Sector SPDR ETF XLE ) just gained over 8% in August and entered September near record highs.
However, Archrock AROC ) may be one energy stock investors want to avoid for now. The natural gas compression specialist currently lands a Zacks Rank #5 (Strong Sell) following back-to-back earnings disappointments and a sharp deterioration in analysts' EPS expectations.
What Does Archrock Do? Archrock provides natural gas compression services, primarily through long-term contract operations, along with aftermarket maintenance and parts services. Its compression equipment increases gas pressure so natural gas can move efficiently through gathering, processing, and transportation infrastructure.
Importantly, Archrock isn't an oil producer, meaning higher crude prices don't translate as directly into stronger profits. Instead, its outlook is tied more closely to natural gas infrastructure activity, equipment utilization, pricing, and operating costs.
Back-to-Back Earnings Misses Archrock's Q2 results in August extended a disappointing earnings trend. Adjusted EPS of $0.38 missed Q2 expectations of $0.46 by 17%, while revenue of $371.24 million fell nearly 5% short of the $390.4 million consensus and declined 3% year over year.
The biggest weakness came from aftermarket services, where revenue plunged to $42 million from $64.8 million a year earlier as parts sales declined and the typical mid-year increase in major maintenance activity failed to materialize.
Archrock subsequently tightened its 2026 adjusted EBITDA outlook to $865-$885 million from $865-$915 million, citing higher make-ready and lubricant costs, softer aftermarket demand and elevated selling, general, and administrative ( SG&A) expenses.
Making matters worse, Q2 marked Archrock's second consecutive top-and bottom-line miss. In Q1, adjusted EPS of $0.42 missed estimates of $0.47, while revenue of $373.77 million came in below the $376.69 million consensus.
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EPS Estimates Keep Heading Lower Most concerning for investors is what has happened since the Q2 report. Over the last 30 days, the Zacks Consensus EPS estimate for fiscal 2026 has fallen nearly 9% from $1.90 to $1.73, while the FY27 EPS estimate has dropped roughly 7% from $2.29 to $2.14.
The current-quarter EPS estimate has been slashed 10% from $0.50 to $0.45, while the next-quarter consensus has fallen from $0.51 to $0.47. Notably, all four estimates have moved lower again during just the last seven days, signaling that analysts may still be recalibrating expectations following Archrock's Q2 disappointment.
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It May Be Time to Take Profits Although Archrock shares are still up a very respectable 20% year to date, the technical picture is also starting to deteriorate. To that point, AROC has fallen further below both its 50-day and 200-day simple moving averages (SMA) of roughly $34 and $32 a share, respectively.
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Bottom Line Archrock still has attractive long-term exposure to rising natural gas infrastructure demand, and its core contract compression business remains healthy. That said, two straight earnings and revenue misses, reduced guidance and broad-based downward EPS revisions make the near-term risk/reward far less compelling even with AROC shares trading at a reasonable 18X forward P/E multiple.
With plenty of energy stocks benefiting more directly from today's elevated commodity-price environment, Archrock's Zacks Rank #5 (Strong Sell) suggests investors may be better served looking elsewhere in the sector until its earnings outlook stabilizes.
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Archrock, Inc. (AROC): Free Stock Analysis Report State Street Energy Select Sector SPDR ETF (XLE): ETF Research Reports This article originally published on Zacks Investment Research (zacks.com).
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