Targa Resources Partners LP (NGLS) Growth + Yield + Insider Buying + No Need for Equity = Great Opportunity; Upgrading to Buy
Upgrading to Buy — We are upgrading Targa Resource Partners, L.P. (NGLS) to Buy/High Risk (1H) from Hold/High Risk (2H) previously. In our view, the partnership’s above-average growth, high current yield, virtually no need for equity in the near-term, and strong insider buying activity provide investors with a near-perfect opportunity to build positions in the partnership’s units.
Growth at a Discount— With new hedges that better reflect the current commodity price environment, we expect NGLS to achieve distribution growth of ~7% over the next 4 to 5 years – above the MLP average of 6.2%. Further, following the recent 23% sequential increase in distributions, the partnership’s units currently offer a yield of 9.7% vs. the MLP average of 8.2% making NGLS one of the best risk-reward propositions in the MLP space.
Insider Buying — Members of management recently purchased nearly 95,000 units. In our opinion, these purchases send a strong signal regarding the partnership’s current valuation as well as future prospects.
Strong & Flexible Balance Sheet — Targa’s balance sheet is currently among the strongest in our space with adjusted Debt/EBITDA projected to be ~2.5x. With nearly $484 million available under its credit facility, NGLS has virtually no need for equity capital in the near-term.
Target Price Unchanged — Our target price remains unchanged at $27 as our higher yield assumption is offset by a higher target distribution estimate.