KNOP

We rate KNOT Offshore Partners LP (KNOP) as a Buy with a composite score of 66.6/100 at a current price of $10.39. The stock scores above average across the majority of our six quantitative factors and ranks #209 out of 7,333 stocks in our universe, reflecting a favorable risk-reward profile.

The rating is primarily driven by strength in value (83th percentile) and momentum (79th percentile), which together account for the majority of the composite score. All factors score above the 40th percentile, indicating no material weakness in the quantitative profile. We assign a Narrow Moat rating (43/100), Medium uncertainty, and Standard capital allocation.

Key items to watch: balance sheet deleveraging progress. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

KNOT Offshore Partners LP holds a mid-tier position (#36 of 50) within the Transportation, Communications, Electric, Gas, And Sanitary Services sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 66.6/100 places it at rank #209 in our full 7,333-stock universe. At $205M in market capitalization, KNOT Offshore Partners LP is a small-cap player in the Transportation, Communications, Electric, Gas, And Sanitary Services space, which limits certain scale advantages but may allow for more agile strategic execution.

The outlook is moderately positive, with revenue expanding at 10% and favorable momentum (79th percentile) reflecting constructive market sentiment. The business shows steady execution, though the growth rate is below the levels typically associated with high-conviction growth stories. Momentum confirmation provides support for the current price level.

The margin cascade tells an important story: gross margins of 65% (+9.7pp vs sector) narrow to operating margins of 23% (+5.3pp vs sector) and net margins of 4.4%, yielding a gross-to-net conversion rate of 7%. The significant margin erosion from gross to net suggests elevated operating expenses, high interest costs, or other structural drags that warrant monitoring.

At a current price of $10.39, KNOT Offshore Partners LP appears undervalued relative to its fundamentals. Our value factor score of 83/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The stock screens as attractively priced on a majority of these measures, suggesting the market may be underappreciating the underlying fundamentals.

The stock currently trades at EV/EBITDA of 1.6x (discounted to peers), P/B of 0.7x, P/S of 0.3x. We evaluate these multiples in the context of both absolute levels and sector-relative positioning to form our valuation view.

We assign a Medium uncertainty rating to KNOT Offshore Partners LP. The stock presents a balanced risk profile: significant leverage (172% debt-to-equity) and low beta of 0.51 — while defensive, this may indicate limited upside participation in bull markets. While not risk-free, the core business fundamentals are adequate to withstand moderate economic stress, and the range of potential outcomes around our fair value estimate is manageable.

Specific risk factors that inform our assessment include: significant leverage (172% debt-to-equity); low beta of 0.51 — while defensive, this may indicate limited upside participation in bull markets; the combination of leverage (172% D/E) and thin margins (4.4% net) amplifies downside risk. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 55th percentile and quality factor at the 66th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: healthy gross margins of 65% provide a buffer against cost pressures. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate KNOT Offshore Partners LP's capital allocation as Standard. Management has shown adequate — though not exceptional — stewardship of shareholder capital. Returns on equity stand at 10.7%, and the balance sheet is managed within acceptable parameters (D/E: 172%). Exemplary allocators typically sustain ROE above 20% and D/E below 50%; KNOT Offshore Partners LP falls short on at least one dimension.

There is room for improvement in optimizing the capital structure or enhancing shareholder returns. The 1.92% dividend yield provides some income return, but the overall capital allocation framework would benefit from either higher reinvestment returns, improved balance sheet efficiency, or increased shareholder distributions. We will monitor for signs of strategic improvement that could warrant an upgrade.

In summary, KNOT Offshore Partners LP receives a Buy rating with a composite score of 66.6/100 (rank #209 of 7,333). Our quantitative framework assigns a Narrow Moat (43/100, trend: stable), Medium uncertainty, and Standard capital allocation. The average factor score across quality, value, momentum, stability, and investment is 70/100.

Our analysis supports a constructive view on KNOT Offshore Partners LP. The combination of identifiable competitive advantages, medium uncertainty, and standard capital allocation creates a risk-reward profile that favors accumulation at current levels. We recommend investors consider adding this name to portfolios aligned with the stock's risk profile.