Targa Resources has delivered a significant run for shareholders, and the scale of that rise puts the focus squarely on whether the current share price is still backed by the cash the business can generate. With the conversation now less about past returns and more about the durability of those cash flows, the valuation question has become sharper.
-
Over the past 5 years the stock has returned roughly 7x, an outcome that raises the stakes for how closely the current price tracks the cash stream investors are paying for.
-
Targa Resources depends heavily on converting its midstream operations into steady free cash flow, which can support ongoing investment needs and any capital returns without stretching the balance sheet.
-
If you’d rather focus on earnings, this one’s for you. See why Targa Resources’s 29.9x P/E tells a different valuation story.
The issue now is whether the cash flows implied by that share price are robust enough to make today’s valuation of Targa Resources look well grounded on its own cash generative power.
If you want more ideas where cash generation sits front and center, a focused screen of 29 high quality undervalued stocks.
Does Targa Resources Look Undervalued on Cash Flow?
The Discounted Cash Flow (DCF) model here focuses on how much cash Targa Resources can return to shareholders over time. On the latest twelve month numbers, the group generated free cash flow of about $1.10b, which gives the model a solid starting point rather than a story built on distant hopes.
Analyst and internal projections used in the DCF point to growing free cash flow through the next decade, moving from under $1b in the outer near term to several billions of dollars further out as midstream assets are expected to throw off more cash. When those future streams are discounted back and compared with the current share price of $314.99, the DCF suggests Targa Resources’ estimated intrinsic value sits substantially above where the stock trades today. Find out what Targa Resources could be worth using our Discounted Cash Flow (DCF) estimate.
The Targa Resources Narrative: What Would Justify Today’s Price?
Narratives on Simply Wall St take the valuation puzzle around Targa Resources and spell out the earnings, margin and growth paths that would need to play out for the stock to look materially more expensive or cheaper than it does today on the Community page. Rather than centering everything on a single multiple or model line, each narrative lays out the key drivers behind its view of fair value so you can track those assumptions against future results.
One of the top community narratives on Targa Resources: roughly fairly valued
“Targa’s focus on long term, largely fee based arrangements and equity interests in pipelines such as Blackcomb and Traverse, combined with highly contracted LPG exports…”
Discover why this Narrative puts Targa Resources at roughly fairly valued.
Before you move on, there is a loose end in the Targa Resources story
Valuation only tells part of the story for Targa Resources, because the research checks also flag areas of concern that deserve a closer look from you before forming a view. Take a closer look at 3 warning signs before settling on a valuation.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Companies discussed in this article include TRGP.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
Source: finance.yahoo.com — article syndicated from the publisher’s feed; all rights remain with the original publisher.
