Targa Resources Corp. (NYSE:TRGP) shareholders will have a reason to smile today, with the analysts making substantial upgrades to this year's forecasts. The revenue forecast for this year has experienced a facelift, with analysts now much more optimistic on its sales pipeline.
Following the upgrade, the current consensus from Targa Resources' eight analysts is for revenues of US$13b in 2021 which - if met - would reflect a substantial 27% increase on its sales over the past 12 months. Per-share earnings are expected to bounce 56% to US$1.41. Before this latest update, the analysts had been forecasting revenues of US$11b and earnings per share (EPS) of US$1.38 in 2021. Sentiment certainly seems to have improved in recent times, with a nice increase in revenue and a modest lift to earnings per share estimates.
It will come as no surprise to learn that the analysts have increased their price target for Targa Resources 10% to US$43.29 on the back of these upgrades. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. The most optimistic Targa Resources analyst has a price target of US$51.00 per share, while the most pessimistic values it at US$29.00. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await Targa Resources shareholders.
Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. It's clear from the latest estimates that Targa Resources' rate of growth is expected to accelerate meaningfully, with the forecast 38% annualised revenue growth to the end of 2021 noticeably faster than its historical growth of 5.9% p.a. over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 3.6% per year. Factoring in the forecast acceleration in revenue, it's pretty clear that Targa Resources is expected to grow much faster than its industry.
The Bottom Line
The biggest takeaway for us from these new estimates is that analysts upgraded their earnings per share estimates, with improved earnings power expected for this year. They also upgraded their revenue estimates for this year, and sales are expected to grow faster than the wider market. There was also a nice increase in the price target, with analysts apparently feeling that the intrinsic value of the business is improving. Seeing the dramatic upgrade to this year's forecasts, it might be time to take another look at Targa Resources.
Better yet, our automated discounted cash flow calculation (DCF) suggests Targa Resources could be moderately undervalued. You can learn more about our valuation methodology on our platform here.
Another thing to consider is whether management and directors have been buying or selling stock recently. We provide an overview of all open market stock trades for the last twelve months on our platform, here.
This article by Simply Wall St is general in nature. 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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