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Targa Resources, Inc. (TRGP) Down 15.6% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research
·4-min read

A month has gone by since the last earnings report for Targa Resources, Inc. (TRGP). Shares have lost about 15.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Targa Resources, Inc. due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Targa Resources Reports Q2 Earnings

Targa Resources reported second-quarter 2020 adjusted net income per share of 21 cents. The Zacks Consensus Estimate was for a loss of 14 cents and the year-ago loss was of 18 cents per share. The outperformance was led by strong volumes across the company’s Permian gathering and processing systems.

The company’s adjusted EBITDA climbed from $306.5 million a year earlier to $351.2 million in the second quarter of 2020.

However, total revenues of $1.5 billion were 24% lower than the year-ago quarter and missed the Zacks Consensus Estimate of $1.6 billion on lower commodity sales, which were down 24% year over year to $1.3 billion. Lower commodity prices also dragged down revenues.

Operational Performance

The Gathering and Processing segment recorded operating margin of $237.2 million during the quarter, up 2% from the $232.1 million achieved in the year-ago period and ahead of the Zacks Consensus Estimate of $214 million. Permian Basin volumes increased 19% year over year to 2,350.5 million cubic feet per day.

In the Logistics and Transportation (or the Downstream) segment, the company reported operating margin of $231.5 million, up 26% year over year. Targa Resources saw fractionation volumes rise from 512.5 thousand barrels per day to 579.3 thousand barrels per day, which is a 13% increase year over year. Moreover, export volumes were up 10% year over year. However, segment operating margin missed the Zacks Consensus Estimate of $261 million due to lower marketing margins and higher operating expenses.

DCF, Capex & Balance Sheet

Second-quarter 2020 distributable cash flow (“DCF”) was $273.7 million, 43% higher than $192 million in the year-ago period. Targa Resources paid out a dividend of 10 cents per share.

Targa Resources spent $142.8 million on growth capex, while its maintenance capex totaled $26.8 million.

As of Jun 30, 2020, the company had $196.2 million in cash and cash equivalents and $7.6 billion in long-term debt. Debt-to-capitalization was approximately 54.7%.

Guidance

Targa Resources reiterated its growth capital spending guidance of $700-$800 million for 2020. The company is still projecting full-year maintenance capex of approximately $130 million, while guiding for a reduction in operating and G&A expenses by more than $100 million.

With the upstream players starting to restore shut-in volumes in response to higher oil prices, Targa Resources now foresees full-year adjusted EBITDA of $1.5-$1.625 billion versus the prior guidance of $1.4-$1.625 billion.

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How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 144.44% due to these changes.

VGM Scores

Currently, Targa Resources, Inc. has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Targa Resources, Inc. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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