Targa Resources: Rewarding Shareholders

Mar. 16, 2021 8:21 AM ETTarga Resources Corp. (TRGP)17 Comments
Aaron Goldberg profile picture
Aaron Goldberg


  • Unlike many midstream companies, Targa Resources set several records in 2020, and EBITDA grew, the culmination of years of planning.
  • Targa will reward common shareholders into 2023 due to the reduction of the complex capital structure and the rationalization of current investments.
  • Retained earnings are powerful and will drive shareholder value for common equity holders.
  • Targa is undervalued at current market prices, and its share price should rise significantly.

Targa Resources, 2020 performance

Targa Resources (NYSE:TRGP) excelled in 2020 and will reward shareholders with higher distributable and free cash flow through 2023. Unlike many midstream companies, Targa's performance doesn't need a full recovery in commodity volumes because the majority of their gathering and processing is in the Permian basin where drilling has been robust even through the downturn. They are benefiting from ongoing efforts to simplify their expensive capital structure, using free cash flow to reduce equity, both preferred and joint venture. When considering the full value of Targa, we must measure both the dividends and retained earnings which are growing substantially. For these reasons, Targa is a strong buy at the current market price.

Like most midstream companies, Targa had a turbulent 2020, but their long term planning set them up to break records in 2020: record EBITDA, free cash flow, Permian natural gas inlet volumes, NGL production and transportation volumes, fractionation volumes and LPG Export volumes. While many of the shale basins struggled to maintain production, the Permian basin, for the most part, kept on chugging.

The story of Targa’s outsized Permian footprint really begins in 2015 with the $7 billion mostly stock deal to acquire Atlas Energy and Atlas Pipeline midstream. In addition to midstream assets in the Mississippi Lime, the SCOOP, Arkoma and Eagle Ford, Atlas gave them a sprawling gathering and processing operation in the Midland Basin which, in conjunction with their other Permian operations in the Central Basin Platform, helping them build a leading position in the play. Their Permian basin footprint served them well in 2020 as it received the lion’s share of attention from E&P companies’ severely depressed drilling budgets.

Today, despite the challenges, they process 2.5 Bcf/d of Permian natural gas (about 15% of the total volume produced in the Permian) and

This article was written by

Aaron Goldberg profile picture
I have over 30 years of personal investing experience. My articles cover mostly small to mid sized midstream companies and larger topics like the energy transition and macro questions, like when will we hit peak shale? I consider myself a value investor and recommend companies that produce high returns over a 3-8 year time horizon. As value returns to other sectors, I will broaden my articles to include other names.

Disclosure: I am/we are long TRGP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Recommended For You

Comments (17)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.