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Targa Resources: This Energy Firm is Undervalued
Stock Analysis & Ideas

Targa Resources: This Energy Firm is Undervalued

Targa Resources (TRGP) is a fossil energy production and infrastructure development company. The energy firm is one of the market leaders in the up-to-mid- stream energy supply chain. I am bullish on the stock.

Commodity Prices

Although central authorities have made efforts to increase the supply of natural gas and oil, the prices still remain steady. WTI crude remains slightly below the $80 per barrel, and natural gas (Henry Hub) has stayed above the $5.00 per MMBtu.

I expect prices to remain at elevated levels, due to the seasonality effect and exponential GDP growth across the globe.

Energy prices have more than doubled in the past year. Targa’s upstream segment, which predominantly operates in the booming Permian Basin, will benefit from these elevated prices, and we could well see the company post highly impressive earnings over the coming year.

See TRGP stock charts on TipRanks >>

Midstream Stronghold

Targa owns and operates several valuable gathering and processing plants in crucial locations like the Permian Basin, Bakken, Barnett, Eagle Ford, and Anadarko Basin.

The company’s 25% fractional ownership in Mont Belvieu is among its most important assets, providing it with a midstream stronghold. Mont Belvieu provides Targa with an integrated process of supply, storage, terminaling infrastructure, and access to end markets through its petrochemical complex and exports.

Earnings and Outlook

Targa Resources beat its Q-3 revenue estimate by $707 million, and its EPS target by $0.16.

Moving forward, the company has a positive outlook and upgraded its previous full-year estimate of $1.9 to $2 billion. In addition, the company now expects its CapEx to reach $450 million, due to additional Permian Basin interests amid booming activity in the basin.

Valuation

Targa Resources is undervalued relative to its industry peers. The stock is trading at a price to sales and price to cash flow discount of 34.5% and 12.47%, respectively.

The company’s exceedance of its fundamental aspects relative to its stock price could indicate that value is in store.

Wall Street’s Take 

Turning to Wall Street, analysts remain bullish on Targa Resources stock. Out of 12 ratings, 11 think it’s a Buy, 1 a Hold, and none think the stock is worth selling. The average price target on the street is $66.25, which presents a value upside worth 21.6%.

Concluding Thoughts

Targa Resources is in a prime position to take advantage of the price action that’s going on in the energy sector, due to its stronghold in upstream and midstream operations. The stock is significantly undervalued, according to key metrics.

Disclosure: At the time of publication, Steve Gray Booyens did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates  Read full disclaimer >

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