Targa Resources Inc (TRGP)

Conclusion

Targa Resources is a Houston-based energy infrastructure company that gathers, processes, transports and sells natural gas and natural gas liquids, and handles crude oil gathering and logistics. At a share price of 273.63 USD on 9 November 2026, its market capitalisation is 58.7 billion USD and its enterprise value is 78.4 billion USD.

The verdict is overvalued. Against their own ten-year medians, the price-to-earnings ratio of 23.99 is below its median of 35.68, but the price-to-free-cash-flow of 62.87 against a median of 25.51, and the price-to-book of 15.39 against a median of 4.57, are far higher. The discounted cash flow gives 98.38 USD per share, and the fair value from historical multiples is 111.04 USD. The fair value band runs from 83.77 to 125.65 USD with a midpoint of 104.71 USD, a margin of safety of -61.7% at the current price. The reverse DCF implies growth of 21.7% a year, against revenue growth of 15.7% a year over five years and a free cash flow per share change of -4.5% a year over the same period.

What holds the case up: an operating margin of 22.5%, ROIC of 11.3% against a WACC of 7.6%, and free cash flow conversion of 95.8% over five years. What would break it: a current ratio of 0.74, net debt to EBITDA of 3.85x, and free cash flow conversion of only 38.2% over the trailing twelve months.

Financial health

Financial strength is red, held back by a current ratio of 0.74, which is assessed as weak, while net debt to EBITDA of 3.85x and interest coverage of 3.71x are neutral. The quick ratio is 0.59 and debt to equity is 5.20, both as of 30 September 2026. The Altman Z-score is 2.49, in the grey zone, but the Altman model was designed for manufacturers and Targa is not one, so the score should be read with caution. Insolvency risk: low, about 3.1% by the estimate of the Ohlson model over one to two years. The company's leverage is the main point to watch, since a high multiple of debt to earnings leaves little room if cash flows weaken.

Earnings quality

Earnings quality is green, supported by a Beneish M-score of -3.18, which is read as unlikely to indicate manipulation, and by free cash flow conversion of 95.8% over five years. The accrual ratio is -8.7%, and stock-based compensation is only 0.42% of revenue. Free cash flow after stock-based compensation is 857.9 million USD on a trailing basis. The share count fell at a compound rate of 1.5% a year over five years, which points to buybacks. The Piotroski score is 6 out of 9. Over the last eight quarters the company beat earnings estimates five times and missed three times, with an average surprise of 11.6%. Estimate revisions were mixed: the current year moved up 1.7% over 90 days, while the next year moved up 2.3%, with two downward revisions in the last 30 days against one upward.

Profitability

Profitability is green. The gross margin is 39.5% against a ten-year median of 14.6%, the operating margin is 22.5% against 11.0%, and the net margin is 13.5% against 0.5%. Margin stability is 0.60. ROIC is 11.3% against a WACC of 7.6%, and the given ROIC minus WACC value of 3.7% is labelled as value creating. The five-year median ROIC is 12.8%. Return on equity is 64.1%, but this is inflated by leverage. The 2025 DuPont split shows a net margin of 10.8%, an asset turnover of 0.68 and an equity multiplier of 8.22, so most of the headline return comes from borrowing rather than from the operations alone.

Growth

Growth is green, though the recent trend is weaker than the long-run record. Revenue fell at a compound rate of 7.6% over three years, but grew 15.7% a year over five years and 10.1% over ten years. Revenue grew in seven of the last ten comparable years. Earnings per share grew 20.2% a year over three years and 22.9% over ten years. Free cash flow per share, however, declined 15.7% a year over three years, 4.5% over five years and 3.9% over ten years. Next year's estimated earnings growth is 3.7%, which is much slower than the long-run figures.

Valuation

Valuation is red. The price-to-earnings ratio of 23.99 is 32.8% below its ten-year median, but enterprise value to EBITDA of 15.32 is 13.4% above its median of 13.51, price-to-free-cash-flow of 62.87 is 146.4% above its median of 25.51, and price-to-sales of 3.23 and price-to-book of 15.39 are far above their medians. The discounted cash flow uses a discount rate of 8.87% and gives 98.38 USD per share, with the terminal value making up 58.9% of it. The fair value from historical multiples is 111.04 USD. The reverse DCF implies growth of 21.7% a year against revenue growth of 15.7% over five years. The dividend yield is 1.66%, with a forward yield of 1.89%, but the payout is 104.3% of free cash flow, so the dividend is not covered by free cash flow.

Risks

The main risk is leverage: a current ratio of 0.74 and net debt to EBITDA of 3.85x leave less room for error if earnings or cash flows fall. Weak trailing free cash flow conversion of 38.2% means that reported profits have recently turned into less cash, and a payout of 104.3% of free cash flow would need to be covered by future cash flow or debt. The decline in free cash flow per share over three to ten years suggests that per-share cash generation has not kept pace with earnings. The reverse DCF requires growth of 21.7% a year, which is well above what has been delivered. The analysis has no debt maturity schedule and no revenue breakdown by segment, so refinancing risk and the mix of earnings across business lines cannot be assessed.