Targa Resources Up 65% YTD, Jefferies Downgrades On Valuation

Targa Resources Corp TRGP reported a 1Q beat, sending its shares surging. Jefferies’ Christopher Sighinolfi downgraded the rating for the company from Buy to Hold, citing valuation and potential for margin pressure. The price target has been raised from $34 to $45.

Targa Resources reported 1Q EBITDA of $265mm, ex-items, handsomely beating the Jefferies estimate of $222mm and the Street expectations of $255mm. DCF of $178mm was also significantly higher than the Jefferies estimate of $124mm.

Looking Ahead

Analyst Christopher Sighinolfi expects the company to keep its quarterly cash dividend unchanged at $0.91 per share through 2018 with ~5 percent annual growth resuming in 2019.

The EPS estimates for 2017 and 2018 have been raised from $(0.01) to $0.29 and from $0.37 to $0.64, respectively.

Limited Upside Remaining

Targa Resources’s shares have gained ~72 percent year-to-date, and the share price is ~91 percent higher than the February lows, Sighinolfi mentioned, while adding that there is potential for further pressure on margins.

“While we believe sentiment has decidedly shifted to positive territory following the rout in midstream earlier this year, we believe the risk/reward skew is more balanced & see fundamental valuation met,” the analyst wrote.