Can Targa Continue Rallying To Meet Its Price Target?

Targa Resources NYSE: TRGP, which specializes in midstream energy infrastructure, has been etching the right side of a consolidation since late July. 

Targa has been correcting in a pretty orderly fashion, especially if you compare it to the many stocks that are down 50% or more this year.

The stock is up 36.41% year-to-date. Shares closed Monday at $71.11, a gain of $0.90 or 1.28%.

Monday’s uptick follows a one-month gain of 7.87%. 

Since its second-quarter report on August 4, the stock is up 11%. 

Earnings came in at $1.63 per share, up a whopping 987% over the year-earlier quarter. Revenue was $6.055 billion, an increase of 77%. 

During the quarter, Targa repurchased 1,121,925 shares of its common stock at a weighted average price of $66.07 for a total net cost of $74.1 million. In addition, between July 1 and July 29, the company repurchased 512,336 shares of its common stock at a weighted average price of $58.57 for a total net cost of $30.0 million. 

There was $214.7 million remaining under its $500 million common share repurchase program as of July 29. Share buybacks slash the number of shares outstanding, available to investors. That means earnings are distributed to a smaller number of shareholders, meaning an increase in earnings per share. 

Targa also updated its earnings estimates for the full year. The company now expects an adjusted EBITDA range of between $2.85 billion and $2.95 billion. That assumes natural gas liquid composite barrel prices averaging $1.05 per gallon, crude oil prices averaging $100 per barrel, and Waha natural gas prices averaging $6.00 per million British Thermal Units for the second half of this year. (Waha is a supply hub in West Texas, in the Permian basin.) 

There’s a lot going on at Targa, and it currently has the momentum to surpass continue rallying. According to MarketBeat institutional ownership data, more institutional buyers have come into the stock in the past 12 months, than sellers who have exited. 

Completed Lucid Acquisition 

Growing through acquisition is a tried-and-true path to increasing shareholder value, and Targa has been actively pursuing that strategy. 

In late July, Targa announced the completion of its acquisition of Lucid Energy for $3.55 billion.

According to the company’s announcement, “Lucid’s assets, which will be integrated into Targa’s existing Permian Basin footprint, include approximately 1,050 miles of natural gas pipelines and approximately 1.4 billion cubic feet per day of cryogenic natural gas processing capacity in service or under construction located primarily in Eddy and Lea counties of New Mexico. Lucid’s Delaware Basin footprint overlays some of the most economic crude oil and natural gas producing acreage in North America. Lucid’s assets are anchored by over 600,000 dedicated acres from a diverse set of high-quality customers and underpinned by long-term, fixed-fee contracts.”

In other words, Targa just expanded its footprint in various regions. That bodes well for future growth. 

Industry Rivals 

Targa’s competitors include Summit Midstream Partners NYSE: SMLP, ONEOK NYSE: OKE, and Energy Transfer NYSE: ET. 

Many of the midstream energy companies fall under the mid-cap categorization. That’s a space that has some advantages; companies can be more nimble than a larger firm, but are also growing big enough to garner some attention from Wall Street analysts. 

Targa’s market capitalization is $16.21 billion, putting it at the lower end of the large-cap category. Based on 11 analyst ratings, there’s a “moderate buy” designation on the stock, with a price target of $81.91, a 15.19% upside.

If reached, that price target would take the stock just above its April 21 high of $81.60. 

There’s plenty of potential in this stock, but if investors want to wait until it’s closer to clearing its current consolidation, that would not be a bad decision, particularly as the broad market continues to struggle.