Targa Resources (TRGP) has signed new 20 year agreements with ExxonMobil in the Permian Basin, tying acreage dedications to an expanded build out of gas processing plants and a residue pipeline.
Targa Resources shares currently trade at US$294.03, with a 30 day share price return of 9.86% and a year to date share price return of 57.43%. The 1 year total shareholder return of 81.84% and very large 5 year total shareholder return suggest momentum has been strong over multiple periods.
Capture how Targa Resources fits into a wider midstream build out by scanning a curated 38 power grid technology and infrastructure stocks that could also benefit from rising energy infrastructure demand.After such a sharp move on the ExxonMobil news, the question now is whether most of Targa Resources’ upside has already been reflected or whether the long contracts and new build program still leave meaningful value on the table.
Most Popular Narrative: 3.1% Undervalued
The most followed narrative currently puts Targa Resources' fair value at $303.52, slightly above the last close of $294.03. This frames the ExxonMobil contracts within a modest undervaluation story.
Substantial investment in integrated export infrastructure including the expansion and debottlenecking of LPG export facilities and new fractionation trains directly leverages rising international and petrochemical-sector demand for U.S. NGLs, creating long-term opportunities to enhance utilization and operating leverage, which should support higher earnings and margins.
Want to see what is sitting behind that earnings and margin outlook? The narrative leans heavily on volume growth, fee based contracts, and a richer export mix. Curious how those pieces are combined into a single fair value number.
According to the narrative, Targa Resources' valuation hinges on a multi year ramp in revenue, evolving profit margins and a future earnings base that would support a higher absolute earnings level than today. Analysts contributing to this view also assume the company will justify a P/E multiple above the broader US Oil and Gas industry and that long term contracts, including those with ExxonMobil, will help support those expectations over time.
That framework gives you a reference point when weighing the recent share price move against the analysts' fair value of $303.52, the current analyst consensus price target of $308.10, and the existing discounted cash flow estimate that places a higher value on Targa Resources' future cash flows.
Result: Fair Value of $303.52 (UNDERVALUED)
Have a read of the narrative in full and understand what's behind the forecasts.
However, the Targa Resources story could still be upset if midstream overbuild pressures fees in key basins, or if regulatory shifts raise costs and slow new projects.
Find out about the key risks to this Targa Resources narrative.
Another View On Targa Resources’ Valuation
The first narrative leans on cash flows and fair value at $303.52, but Targa Resources currently trades on a P/E of 28x. That is above both the fair ratio of 25.2x and the US Oil and Gas industry at 13.1x, which suggests valuation risk if growth expectations cool. Which signal do you trust more today?
See what the numbers say about this price — find out in our valuation breakdown.
Next Steps
With sentiment clearly mixed around Targa Resources, now is a good time to look through the underlying numbers and form your own view. To see both sides of the story in one place, weigh up the 3 key rewards and 2 important warning signs.
Looking for more investment ideas beyond Targa Resources?
Do not stop at Targa Resources. The ExxonMobil contracts are one piece of the midstream story, and there are plenty of other stocks that could shape your returns.
- Spot potential bargains early by scanning a focused set of 20 high quality undiscovered gems that pair solid fundamentals with limited market attention.
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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.
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