- Targa Resources is a midstream C-Corp that was an over-levered midstream player in 2020 that has made a sharp positive turn around in 2021 and raised guidance multiple times.
- Targa positives include growth, Permian exposure, export exposure, NGL exposure, stock buybacks, benefits from rising oil prices, NGL prices, and natural gas prices, and catalysts.
- A key catalyst: the balance sheet is already at investment grade levels and given likely further improvement, we believe an upgrade to IG is likely within 18 months.
- Another catalyst: Targa is in a JV development company and a buy-out is likely at 5.5x-6xEBITDA which could unlock an incremental $150mm EBITDA (though we assume less).
- But here’s more: Valuation is reasonable too at 9.6x 2021E EBITDA vs mid 9s for peers, 11x for ONEOK, and below its average of last 7 years.
For further details see:
Why We Believe Targa Resources Is Likely To Outperform Over The Next Several Years