On Thursday, Barclays updated its outlook on Targa Resources Corp (NYSE:TRGP), raising the price target to $155 from the previous $138, while retaining an Overweight rating on the stock. The update reflects a positive view on the company's Gathering & Processing (G&P) segment, which is expected to demonstrate resilient and steady growth. This segment's performance is seen as insulated from the downside risks of commodity prices due to the presence of fee floors in contracts.
The G&P segment, according to Barclays, is anticipated to post an adjusted EBIT of $578 million for the third quarter of 2024. This forecast is supported by significant growth in Permian inlet volumes. From the end of 2023 to the end of 2024, Barclays estimates low double-digit growth in these volumes. It is noted that approximately 90% of Targa Resources' G&P volumes are secured under fee-based agreements or have fee floors, which provided the company with minimal exposure to the depressed Waha gas prices that persisted throughout the quarter.
Furthermore, Targa Resources is expected to have capitalized on optimization opportunities stemming from the weak Waha gas pricing. Looking forward, the company is on schedule to commence operations of its Greenwood II plant, which has a capacity of 275 million cubic feet per day (mmcf/d), in early fourth quarter of 2024. This is anticipated to significantly increase G&P volumes.
The outlook for Targa Resources extends into the second quarter of 2025, with the expected service placement of the Bull Moose facility, also with a capacity of 275 mmcf/d, in the Delaware basin. Beyond 2025, Barclays forecasts that continuous volume growth and additional future Permian processing plants will likely ensure a steady flow of volumes into Targa Resources' integrated Natural Gas Liquids (NGL) system downstream.
In other recent news, Targa Resources has been making significant financial moves. The company has recently issued $1 billion in 5.5% Senior Notes due in 2035, with the proceeds designated for various corporate purposes including debt repayment. This comes after Targa's successful extension of its credit facility to August 2025, ensuring continued access to capital for its working capital requirements.
Citi and RBC Capital have maintained their positive ratings on Targa Resources, highlighting the company's growth strategy and robust financial health, respectively. Citi predicts a third-quarter EBITDA of $1.02 billion for Targa, slightly above the Street's average estimate, based on the company's continued execution of its growth strategy. RBC Capital noted Targa's intensified share buyback activities and expected shift to positive free cash flow as positive indicators.
In addition to these financial developments, Targa has also announced operational advancements. The company reported a record second quarter for 2024, with a record adjusted EBITDA of $984 million, largely driven by increased volumes in the Permian assets. Targa also appointed Will Byers as the new Chief Financial Officer and announced its participation in the Blackcomb pipeline joint venture.
InvestingPro Insights
Targa Resources Corp's (NYSE:TRGP) strong performance and positive outlook, as highlighted by Barclays, are further supported by recent data from InvestingPro. The company's market capitalization stands at $33.57 billion, reflecting its significant presence in the energy sector.
InvestingPro data shows that Targa Resources has demonstrated impressive financial performance, with a robust revenue of $16.26 billion over the last twelve months as of Q2 2024. This aligns with Barclays' positive view on the company's Gathering & Processing segment and its potential for steady growth.
Two key InvestingPro Tips are particularly relevant to the article's content:
1. Targa Resources has raised its dividend for 3 consecutive years, which may indicate management's confidence in the company's financial stability and growth prospects.
2. The stock is trading near its 52-week high, reflecting investor optimism that aligns with Barclays' increased price target.
These insights complement Barclays' analysis of Targa's resilient G&P segment and its growth potential in the Permian basin. For investors seeking a more comprehensive analysis, InvestingPro offers 12 additional tips for Targa Resources, providing a deeper understanding of the company's financial health and market position.
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