On Monday (NASDAQ:MNDY), RBC Capital Markets updated its view on Targa Resources Corp (NYSE:NYSE:TRGP) shares, a midstream energy company, by raising its price target from $172.00 to $199.00. The firm maintained its Outperform rating on the stock, signaling confidence in the company's performance and future prospects.
The upgrade follows Targa Resources' announcement of robust third-quarter 2024 earnings and an upward revision of its full-year 2024 guidance, attributed to higher volumes. The analyst from RBC Capital Markets noted that the company's backlog of growth projects is anticipated to significantly contribute to cash flow, which in turn could bolster capital returns over time.
The analyst highlighted the expectation of a cash flow inflection point beginning in 2025. This potential increase in cash flow, combined with Targa Resources' solid balance sheet, is expected to provide the company with greater financial flexibility. This could potentially lead to increased returns to shareholders.
The maintained Outperform rating and the new price target reflect the analyst's optimism about Targa Resources' enhanced earnings potential. The company's strategic growth initiatives appear to set the stage for sustained financial improvement in the coming years.
In other recent news, Targa Resources Corp. reported robust growth in the third quarter of 2024, with a record adjusted EBITDA of $1.07 billion. This success is attributed to increased volumes in the Permian region and a strategic shift to a fee-based model, insulating 90% of the company's margins from commodity price fluctuations.
The company has also announced two new plants in the Permian, with sour gas treating capacity set to exceed 2.3 billion cubic feet per day by early 2025.
Targa's financial stability was further recognized by Moody's (NYSE:MCO), which upgraded the company to Baa2 in October. Moreover, the company's logistics segment reported record transportation and fractionation volumes for natural gas liquids. The firm also expects 2024 adjusted EBITDA to surpass $4.05 billion, indicating over $500 million growth year-over-year.
Looking ahead, Targa plans to return 40% to 50% of adjusted cash flow to shareholders in 2024, with infrastructure spending set to accelerate in 2025. The company also projects an increase in the annual common dividend to $4 per share in 2025, and has repurchased nearly $650 million in shares year-to-date. These recent developments underscore Targa's commitment to shareholder returns and robust financial health.
InvestingPro Insights
Targa Resources Corp's (NYSE:TRGP) recent performance and future outlook align well with the positive sentiment expressed by RBC Capital Markets. According to InvestingPro data, the company's stock has shown remarkable strength, with a 132.53% total return over the past year and a 71.59% return in the last six months. This robust performance has brought the stock price to 99.82% of its 52-week high, reflecting strong investor confidence.
InvestingPro Tips highlight that Targa Resources has raised its dividend for 3 consecutive years, with a current dividend yield of 1.56%. This aligns with the analyst's expectation of increased returns to shareholders. Additionally, the company's profitability over the last twelve months and analysts' predictions of profitability this year support the positive outlook on cash flow generation.
While the P/E ratio of 33.95 might seem high, it's worth noting that the PEG ratio of 0.76 suggests the stock may be undervalued relative to its earnings growth potential. This could provide further upside, in line with RBC's increased price target.
For investors seeking more comprehensive analysis, InvestingPro offers 18 additional tips for Targa Resources, providing a deeper understanding of the company's financial health and market position.
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