Mid-caps stocks, like Targa Resources Corp. (NYSE:TRGP) with a market capitalization of US$9.3b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. Let’s take a look at TRGP’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Don’t forget that this is a general and concentrated examination of Targa Resources’s financial health, so you should conduct further analysis into TRGP here.
TRGP’s Debt (And Cash Flows)
TRGP has built up its total debt levels in the last twelve months, from US$5.4b to US$7.5b , which accounts for long term debt. With this growth in debt, TRGP's cash and short-term investments stands at US$125m , ready to be used for running the business. On top of this, TRGP has produced US$1.1b in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 15%, meaning that TRGP’s current level of operating cash is not high enough to cover debt.
Does TRGP’s liquid assets cover its short-term commitments?
Looking at TRGP’s US$2.0b in current liabilities, it seems that the business may not have an easy time meeting these commitments with a current assets level of US$1.2b, leading to a current ratio of 0.58x. The current ratio is the number you get when you divide current assets by current liabilities.
Can TRGP service its debt comfortably?
TRGP is a relatively highly levered company with a debt-to-equity of 98%. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since TRGP is currently loss-making, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Although TRGP’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. However, its low liquidity raises concerns over whether current asset management practices are properly implemented for the mid-cap. I admit this is a fairly basic analysis for TRGP's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Targa Resources to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for TRGP’s future growth? Take a look at our free research report of analyst consensus for TRGP’s outlook.
- Valuation: What is TRGP worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether TRGP is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.