TARGA RESOURCES CORP. (TRGP): what the price requires
At today's price, TARGA RESOURCES CORP. (TRGP) is priced for +17.0% growth. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.
Generated: 2026-07-14 · Exported: 2026-07-16 · Source: https://boothcheck.com/report/TRGP
Headline
| Field | Value |
|---|---|
| Ticker | TRGP |
| Company | TARGA RESOURCES CORP. |
| Sector / Industry | Utilities / Utilities |
| Current price | $279.87/sh |
| Composition | Sales of commodities - Natural gas 12% / Sales of commodities - NGL 71% / Sales of commodities - Condensate and crude oil 3% / Sales of commodities - Derivative activities - Hedge 1% / Sales of commodities - Derivative activities - Non-hedge -1% / Fees from midstream services - Gathering and processing 11% / Fees from midstream services - NGL transportation, fractionation and services 2% / Fees from midstream services - Storage, terminaling and export 3% / Fees from midstream services - Other 0% |
What The Price Requires (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | whole-company |
| Operating margin needed | 12.2% |
| Operating margin today | 19.1% |
| Margin compression implied | -6.9pp |
| Implied growth | 17.0% |
| Multiple paid | 24x operating income |
The operating-margin requirement is derived from the framework's value band at year 12, a separately labeled basis from the headline growth/duration solve.
Solve inputs: computed at a 8.5% cost of capital with 4% terminal growth over a 5-year stage; each 1pp of cost of capital moves the implied operating-profit growth ~7.6pp.
How unusual the bet is: within-range
| Reference | Value |
|---|---|
| vs own history | +0.41σ |
| cohort percentile (of 70 peers) | 71 |
| sustained it ~5 years at this level | 45% |
| implied end-window share | 0% |
Valuation X-Ray
The price is justified by relative-multiple; asset-based/earnings-power land below the price.
How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.
| Family | Median price/FV | Models | Reads |
|---|---|---|---|
| Asset | 2.10x | 4 | expensive |
| Earnings | 2.64x | 3 | expensive |
| Relative | 1.24x | 5 | expensive |
| Growth | 1.49x | 2 | expensive |
Families that justify the price: Relative Families that call it expensive: Asset, Earnings
The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 8.0%); the inversion above states its own rate.
Per-Model Detail (n=14)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | $0.00 | — | no | FCF base $0.3B, growth 2% (input: historical growth), terminal g 2.3%, WACC 8.0%, 5yr projection |
| DCF Exit Multiple | Growth | $185.41 | 1.51x | yes | Exit EV/EBITDA: 13.2x / 15.2x / 17.2x (bear / base = today's held flat / bull), 5yr |
| Relative Valuation | Relative | $214.15 | 1.31x | yes | P/E 20x (static sector reference · 2026-04), scenarios: 16.9x / 20.0x / 23.1x (bear / base = reference held flat / bull), EV/EBITDA 13x |
| Simple DDM | Growth | — | — | no | — |
| Two-Stage DDM | Growth | — | — | no | — |
| Simple Excess Return | Asset | $106.96 | 2.62x | yes | BV/sh $14.55, ROE (TTM) 68.0%, ke 9.3% |
| Two-Stage Excess Return | Asset | $427.24 | 0.66x | yes | 5yr excess ROE then converge to ke=9.3% |
| Discounted Future Market Cap | Growth | $191.39 | 1.46x | yes | Rev $16.6B, growth 2% (input: historical growth; tapered), Terminal P/S: 3.1x / 3.6x / 4.2x (bear / base = today's held flat / bull, cap 8x) |
| Peter Lynch Fair Value | Relative | $342.65 | 0.82x | yes | EPS $9.79, growth 35% (input: historical EPS growth), PEG=0.81 (Undervalued) |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | $24.29 | 11.52x | yes | Normalized EBIT (5y avg op income, one-time charges added back) $2.44B × (1−20%) / WACC 8.0% → EPV (no growth) |
| Residual Income | Asset | $177.07 | 1.58x | yes | BV $14.55 + 5yr PV of (ROE (TTM) 68.0% − Kₑ 9.3%) × BV; BV grows 8.8%/yr |
| Graham Number | Asset | $56.62 | 4.94x | yes | √(22.5 × EPS $9.79 × BVPS $14.55) — Graham's conservative floor |
| EV/EBITDA Relative | Relative | $225.89 | 1.24x | yes | EBITDA $5.21B × sector EV/EBITDA 13.0x |
| FCF Yield | Earnings | $0.01 | 27986.50x | yes | FCF $261.9M / Kₑ 9.3% — zero-growth perpetuity (excluded from median) |
| SBC-Adj FCF Yield | Earnings | $0.01 | 27986.50x | yes | SBC-adj FCF $0.19B (FCF $0.26B − SBC $0.08B) capitalized at Kₑ (excluded from median) |
| Ben Graham Formula | Earnings | $315.89 | 0.89x | yes | EPS $9.79 × (8.5 + 2×15.0%) × (4.4 / 5.3%) |
| ROIC-Justified P/B | Asset | $5.55 | 50.43x | yes | BV $14.55 × (ROIC 3.0% / WACC 8.0%) (excluded from median) |
| P/Sales Sector | Relative | $192.13 | 1.46x | yes | Revenue $16.56B × sector P/S 2.5x |
| PEG Fair Value | Relative | $367.12 | 0.76x | yes | EPS $9.79 × (PEG 1.5 × growth 25.0% (input: historical EPS growth)) → PE 37.5x |
| Earnings Yield | Earnings | $105.84 | 2.64x | yes | EPS $9.79 / required return 9.3% (Rf 4.3% + ERP 5.0%) |
| Funds From Operations Multiple | Relative | — | — | no | — |
| Clinical Phase NPV | Growth | — | — | no | — |
| Merton | Asset | — | — | no | — |
| V5 Mechanical | — | — | — | no | — |
Solvency
| Field | Value |
|---|---|
| Net debt | $19.4b |
| Net debt / NOPAT (after-tax) | 7.45x |
| Net debt / operating income (pre-tax) | 5.94x |
| Share count CAGR (buyback) | -1.9% |
| Burning cash | no |
Interest expense is not separately reported in the latest filings, so interest coverage cannot be computed.
Bullet Takeaways
- Targa's revenue fell 10.2% year over year in the March quarter while operating income rose 55.9%, which is the fee-based midstream model working as designed: the 10-K notes that "we benefit from long-term fee-based arrangements for our services", so commodity prices pass through revenue while fees hold the margin.
- The catch is cash: trailing free cash flow is $262 million against $2.13 billion of net income, because roughly $4.5 billion of 2026 growth capital is being poured into Permian plants, fractionation trains, and pipelines, all of which must fill to justify a multiple at the very top of the peer distribution.
- Watch the raised full-year 2026 adjusted EBITDA guidance of $5.7 to $5.9 billion and the project calendar behind it, with the Train 12 fractionator due in fiscal Q1 2027 and the Speedway NGL pipeline in fiscal Q3 2027.
Bull Case
Follow the direction of the earnings, not the revenue. Over the last year Targa's quarterly revenue drifted from $4.26 billion down to $4.09 billion, yet in the March quarter operating income jumped 55.9% year over year, net income rose 77.3%, and earnings per share more than doubled. That divergence is the structure of the business showing through: commodity sales pass through the top line at whatever price gas and NGLs fetch, while the profit engine is the fee side, where the 10-K states plainly that "we benefit from long-term fee-based arrangements for our services", particularly in the downstream business. The first quarter was a record, with net income of $480 million versus $271 million a year earlier and adjusted EBITDA of $1.4 billion, and management raised full-year 2026 adjusted EBITDA guidance by $300 million to $5.7 to $5.9 billion on gas marketing and LPG export opportunities.
The growth case is a queue of physical assets with dates attached. The company reported record Permian inlet volumes and record fractionation volumes in the first quarter, reaffirmed low double-digit Permian volume growth for 2026, and has the Train 12 fractionator arriving in fiscal Q1 2027, Train 13 in fiscal Q1 2028, the Speedway NGL pipeline in fiscal Q3 2027, and two new Permian Delaware processing plants targeted for early 2028. It also closed the $1.3 billion Stakeholder Midstream acquisition in January 2026, bolting more gathering into the same footprint. The filing frames the demand side as structural rather than cyclical: "Continued demand for transportation, fractionation and export capacity is expected to lead to increased demand for other related fee-based services". Each completed project converts construction spend into fee-bearing capacity on a system already anchored by Mont Belvieu fractionation scale, where Cedar Bayou alone runs 493 thousand barrels per day of capacity.
Meanwhile the shareholder gets paid during the buildout. The dividend runs at $4.00 per share annualized, up from $3.75 declared for fiscal 2025, a 1.5% yield consuming just 40.4% of net income, and the company repurchased $571.9 million of stock over the trailing year, another 27% of net income. Operating cash flow of $3.7 billion funds most of the capital program internally. Profitable in all four trailing quarters, cash from operations exceeding net income, no dilution: the quality signals point the same direction as the guidance raise.
Bear Case
The price is a stack of forward assumptions, and the load-bearing one is Permian volume growth. At about 24x operating income, a multiple sitting at the very top of its peer distribution, the market is paying for roughly 15.8% annual operating growth for five years. That growth arrives only if producers keep drilling into Targa's gathering systems, and the company's own filing names the fragility: "Fluctuations in energy prices can greatly affect production rates and investments by third parties in the development and production of new oil and natural gas reserves". Management itself flagged persistent shut-ins even while reaffirming its low double-digit volume outlook. A sustained slide in crude would not hit Targa's fees directly; it would hit the drilling that fills next year's plants, which is the same thing on a lag.
The second assumption is that the buildout pays for itself before the cash math tightens. Trailing free cash flow is $262 million against $2.13 billion of net income, a 12% conversion rate, with free cash flow negative in three of the last four quarters as growth capital runs near $4.5 billion this year. On top of that outflow the company paid a dividend and repurchased $571.9 million of stock, which means the balance sheet carries the difference: debt stands at 5.85x equity, and the filing discloses variable-rate exposure alongside a derivative book that swung to a "net liability position of $66.9 million at December 31, 2025" on unfavorable natural gas basis moves. Leverage is well covered today. It is less forgiving if EBITDA growth pauses while Trains 12 and 13 are still construction sites.
The valuation methods split in a telling way. Peer multiples roughly defend the price, but earnings-power methods put it at 2.6x what demonstrated profits support and asset-based methods at 1.6x, meaning the market is crediting tomorrow's capacity, not today's. Historically, only about 47% of comparable fast growers sustained the required pace for five years, roughly a coin flip. And the competitive field is not passive: Energy Transfer's filing describes gathering and processing as "generally characterized by regional competition based on the proximity of gathering systems and processing plants", and Enterprise, ONEOK, and Williams are building toward the same Gulf Coast export docks. The bet is not that Targa executes; it is that everyone else's steel does not compress the fees when it all comes online together.
Valuation
What does $273.28 (July 10, 2026) buy? A midstream system priced at about 24x operating income, which embeds roughly 15.8% annual operating growth for five years. Two things stand out about that bet. First, the rate itself is within what Targa has recently delivered, and the price asks nothing of margins: the long-run requirement works out to about a 12.1% operating margin against the roughly 21.9% the business earns today, so the entire premium rests on growth and its duration. Second, the multiple sits at the very top of the midstream peer distribution, and only about 47% of comparable fast growers historically sustained that pace for five years.
The methods disagree along exactly that fault line. Peer multiples come close to defending the price. The families anchored to demonstrated results do not: earnings-power methods put the price at about 2.6x what current profits support, asset-based methods at 1.6x, and even forward-growth methods land about 30% short. The pattern says the market is capitalizing capacity that is still being built, a reading consistent with the filing's own growth framing, which expects "Continued demand for transportation, fractionation and export capacity" to pull through more fee-based service revenue, and with the contract structure, where "long-term fee-based arrangements" anchor the downstream business. The street mean target of about $274 sits almost exactly at the price, which is the same statement in different clothes: consensus credits the growth plan roughly in full.
The balance sheet can carry the bet, with less slack than the income statement suggests. Leverage is moderate and well covered, but free cash flow is thin at $262 million trailing because growth capital absorbs most of the $3.7 billion of operating cash flow, and the $4.00 annualized dividend plus $571.9 million of trailing buybacks are paid through that same window. The downside is not solvency; it is a multiple at the top of its peer group compressing toward the pack if Permian volumes or export demand arrive slower than the construction schedule assumes.
Catalysts
The first quarter reset the year's bar. Targa reported record quarterly results, with net income of $480 million versus $271 million a year earlier and adjusted EBITDA of $1.4 billion, and management raised full-year 2026 adjusted EBITDA guidance by $300 million to $5.7 to $5.9 billion, citing realized and expected opportunities in gas marketing and LPG exports. The next print tests whether the raise was conservative or complete: management reaffirmed low double-digit Permian volume growth for 2026 while acknowledging persistent shut-ins, so reported inlet and fractionation volumes are the numbers to check against that claim.
The project calendar supplies the dated milestones. The Speedway NGL pipeline is slated for fiscal Q3 2027, the Train 12 fractionator for fiscal Q1 2027, Train 13 for fiscal Q1 2028, and East Driver plus multiple Delaware Basin plants are progressing on schedule, with two new Permian Delaware processing plants announced for commissioning in early 2028. Net growth capital spending is holding near $4.5 billion for the year, so any change to that figure signals either new projects or a demand rethink. The $1.3 billion Stakeholder Midstream acquisition closed January 6, 2026, and its integration flows into 2026 volumes. Analyst sentiment is a Buy consensus with an average target near $274, with the range running from $245 to $331, which leaves the stock trading at the consensus view and makes each quarterly volume print the live variable.
Peer Cohorts (Per Segment, With Filing Citations)
Gathering and Processing / Logistics and Transportation (reported)
- WMB (WILLIAMS COMPANIES, INC.)
- (no filing in the citation store)
- OKE (ONEOK INC /NEW/)
- (no filing in the citation store)
- KMI (KINDER MORGAN, INC.)
- (no filing in the citation store)
- ET (ENERGY TRANSFER LP)
- (no filing in the citation store)
- EPD (ENTERPRISE PRODUCTS PARTNERS L.P.)
- (no filing in the citation store)
- PAA (PLAINS ALL AMERICAN PIPELINE LP)
- (no filing in the citation store)
Methodology Note
- Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
- Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
- Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
- Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.
Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.
Sources
Q1 2026 earnings call, May 2026 · Q1 2026 earnings release and call, May 2026 · acquisition announcement, January 2026 · stockanalysis.com, July 2026 · Q1 2026 earnings release and call, May 8, 2026 · acquisition completion announcement, January 2026 · stockanalysis.com and MarketBeat, June 2026