Unveiling Targa Resources (TRGP)'s Value: Is It Really Priced Right? A Comprehensive Guide
Targa Resources Corp (NYSE:TRGP) experienced a daily loss of 1.61%, but over the last three months, the company managed to gain 16.05%. With an Earnings Per Share (EPS) of 3.69, the question arises - is the stock modestly overvalued? This article presents a detailed analysis of Targa Resources' valuation and encourages readers to delve into the subsequent sections for a comprehensive understanding.
Company Overview
Targa Resources Corp, a midstream firm, primarily operates gathering and processing assets with substantial positions in the Permian, Stack, Scoop, and Bakken plays. The company's stock price stands at $86.04, while the GF Value, an estimation of fair value, is $68, suggesting a modest overvaluation. This article will delve deeper into Targa Resources' intrinsic value, providing an insightful blend of financial assessment and essential company details.
Understanding GF Value
The GF Value represents the current intrinsic value of a stock, derived using a unique method. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded. This value is calculated based on three factors: historical multiples, GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of business performance.
Targa Resources (NYSE:TRGP), at its current price of $86.04 per share, is believed to be modestly overvalued according to GuruFocus' valuation method. This suggests that the long-term return of Targa Resources' stock is likely to be lower than its business growth.
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Financial Strength and Risk
Investing in companies with poor financial strength can lead to a higher risk of permanent capital loss. Therefore, it's crucial to review a company's financial strength before investing. Targa Resources has a cash-to-debt ratio of 0.01, ranking lower than 95.45% of 1034 companies in the Oil & Gas industry. This indicates that Targa Resources' financial strength is relatively weak.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. Targa Resources has been profitable for 7 out of the past 10 years. With an operating margin of 13.83%, Targa Resources ranks better than 59.76% of 984 companies in the Oil & Gas industry, indicating fair profitability.
Growth is a crucial factor in a company's valuation. Targa Resources' 3-year average annual revenue growth of 34.4% ranks better than 86.66% of 862 companies in the Oil & Gas industry. The 3-year average EBITDA growth rate is 36.7%, ranking better than 74.94% of 830 companies in the same industry.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) and the Weighted Average Cost of Capital (WACC) can provide insights into its profitability. Over the past 12 months, Targa Resources' ROIC was 12.41, and its cost of capital was 9.97, indicating a healthy financial performance.
Conclusion
Based on the analysis, Targa Resources' stock appears to be modestly overvalued. The company's financial condition is weak, but its profitability is fair, and its growth ranks better than 74.94% of 830 companies in the Oil & Gas industry. To learn more about Targa Resources' stock, check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
