Kodiak Gas Services [KGS]
The memo issues NO position verdict. It scores Criteria and hands the book an analysis. What follows is construction detail the book needs if it decides to act, plus the risk parameters.
| criterion | verdict | basis |
|---|---|---|
| Quality | PASS | 27.0% filed TTM operating margin, +5.5pp vs FY2024; 42.2% gross margin; 98.0% fleet utilisation; no retired or redefined metric across 3 10-Ks and 9 transcripts |
| Accounting quality | PASS | same-quarter DSO −10.7 days with an explicit factoring search returning nil; DPO flat (+0.8d); no receivables sale, securitisation or supply-chain-finance programme disclosed |
| Growth durability | INDETERMINATE | no backlog or contracted-revenue quantity is disclosed; the only forward quantity given is that 9.0% of revenue-generating HP is already month-to-month. A missing input is INDETERMINATE, never FAIL |
| Valuation (implied-path test) | FAIL | required 28.2% vs 4.9% demonstrated organic; −23.3pp |
| Catalyst | PASS | Q2 2026 results imminent (see calendar) |
| Capital allocation | FAIL | marginal ROIC on new horsepower ~5.4% after tax against a 5.5% after-tax cost of the debt funding it; consolidated ROIC 6.66% vs 8.5% WACC |
Equity. The default under the brief, and it needs no argument. No LEAP is proposed: that would require measured implied volatility minus trailing 252-day realised volatility, and realised vol is 38.6% — high enough that a long-dated call is expensive in absolute terms and the IV/RV spread would have to be measured, not assumed. Not measured this run; therefore not proposed.
No options contract is recommended. No entry is written to trade_recommendations.jsonl because
the memo's own valuation output is a FAIL and the ledger records specific recommendations, not
analyses.
| Thesis horizon | 12 months (the price-target horizon); the 5-year implied path does not support ownership |
| Size constraint | 38.6% realised vol and 3.9x net-debt/EBITDA argue for a half-weight slot at most |
| Entry | no limit proposed — the valuation output does not support one |
| Invalidation, hard | fleet utilisation below 95% in any quarterly Operational Highlights table, or month-to-month HP above 12% of revenue-generating HP (from 9.0%) |
| Invalidation, soft | revenue per revenue-generating horsepower flat or negative year over year — that removes the only lever that is not capital |
| Downside case, named cause | Consensus FY2026 revenue of $1,515.1m requires a +10.8% sequential step in Q2'26 against 4.9% year-over-year growth at 98% utilisation. If Q2 comes in near the Q1 run-rate, the NTM base falls to ~$1,450m and the 12-month target falls from $79.54 to $66.86. Because net debt is 34.0% of EV, a 12% revenue shortfall is a ~16% equity move. Type: MEASURED — logged and scored, does not reject the name |
The verdict is a function of one number: the exit multiple. At today's 22.15x held flat the required CAGR is 5.9% against 4.9% demonstrated — a −1.0pp near-miss rather than a −23.3pp failure. The name becomes ownable if and only if ROIC rises toward WACC, which requires either (a) price per horsepower rising faster than 3.7% on a sustained basis, or (b) growth capex stopping, which caps revenue growth near zero but converts a 15.3% FCF margin into a 32.6% one. Management has not signalled (b).