Targa Resources: Large Growth Potential With High Capex Spending

Core Thesis - Targa Resources (NYSE:TRGP) is a midstream company focused on a vertically integrated value chain for natural gas and natural gas liquids from the Permian Basin to international markets, with significant capital deployment for growth [2][3] Company Profile - TRGP derives over 80% of its natural gas and NGL volumes from the Permian Basin, with operations encompassing gathering, processing, and fractionation, culminating in LPG exports to Asia [3] Growth Trajectory - Since the end of the pandemic, TRGP has completed several M&A transactions and built out its integrated system, increasing CAPEX from $500 million in 2021 to an estimated $2.7 billion through 2024, with 2024 expected to be the peak year for CAPEX [4][5] EBITDA Growth - TRGP projects EBITDA to reach $4.0 billion in 2024, with potential growth to $5.1 billion by 2026, implying over 25% growth and a 13% CAGR, driven by ongoing projects [6][7] Investment Strategy - The company is investing in the Blackcomb pipeline, taking a 17.5% minority stake with a $200 million investment, which supports production growth in the Permian [8] Valuation Analysis - TRGP currently trades at a higher EV to EBITDA multiple than EPD, but the expected higher EBITDA growth rate suggests that TRGP will outperform EPD in share price performance [9][10] Financial Projections - EBITDA for 2024 is projected at $4.0 billion, with a net cash burn of $1.185 billion, but 2025 is expected to show a neutral cash balance after CAPEX, dividends, and buybacks [14][13] Key Takeaways - Targa Resources is positioned for high growth with an integrated system for NGL delivery, comparable to Enterprise Products, but with a larger growth rate due to its smaller size [16] - CAPEX is expected to decrease by approximately $1 billion from 2024 levels, allowing the company to operate within free cash flow and stabilize debt levels [16] - The combination of higher growth rates and share repurchases is anticipated to drive significant share price appreciation, making TRGP ideal for investors seeking capital appreciation [16]