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Barclays Upgraded Targa Resources

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Analyst recommendations

Last week, Barclays upgraded Targa Resources (TRGP), a midstream MLP involved in natural gas gathering and processing, NGLs fractionation, and liquids terminalling & storage, to “overweight” from “equal weight.” Moreover, it increased the c-corporation’s target price to $58 from $50. Now, 57.1% of analysts rate Targa Resources a “buy,” and the remaining 42.9% rate it a “hold.” TRGP’s average target price of $52.5 implies ~3% upside potential from the current price levels.

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Valuation

Targa Resources was trading at a forward EV-to-EBITDA multiple of 12.7x as of January 22, 2018, which is above the historical five-year and one-year average of 11.5x and 12.3x, respectively. TRGP’s current multiple is also higher than the peer median of 11.8x, which indicates that TRGP is currently trading at a premium to its historical average and peers. This might reflect the sharp increase in crude oil prices and higher crude oil price estimate for 2018. TRGP has relatively high crude oil exposure through its natural gas midstream and NGLs (natural gas liquids) businesses.

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