Targa Up 6% On $500M Buyback Plan, Strong Outlook; Analyst Sees 82% Upside

Targa Resources announced that its board of directors has authorized a share repurchase program of up to $500 million, sending the stock up as much as 4.8% in Monday’s pre-market session.

Targa (TRGP) said that the share repurchase plan of its outstanding common stock is effective immediately. The repurchases will be made in accordance with applicable securities laws from time to time in open market or private transactions and may be made pursuant to a trading plan.

In an update to investors, the natural gas company said that its overall business performance has been strong despite continued uncertainties tied to the COVID-19 impact. Targa estimates its full-year 2020 adjusted EBITDA to be at or around the high end of its previously provided outlook of $1.5 billion to $1.625 billion. Its 2020 net growth capital spending is forecast to be around the low end of its previously provided outlook of $700 million to $800 million.

“Our expected strong performance and lower growth capital spending through the second half of 2020 creates additional free cash flow, which positions us to continue to execute on our strategy of reducing leverage over time,” said Targa CEO Matt Meloy. “We are focused on continuing to improve our financial flexibility by reducing our leverage and simplifying our capital structure as we look forward, and that long-term strategy is unchanged by implementing a share repurchase program.”

“Similar to earlier this year when we repurchased a portion of our publicly traded senior notes, this program allows us to be positioned to make similar opportunistic repurchases of our common shares,” Meloy added.

Targa is one of the largest independent midstream infrastructure companies in North America, which owns and operates a diversified portfolio of complementary midstream infrastructure assets. It is primarily engaged in the business of transporting and selling natural gas and crude oil.

Targa hares have lost 65% this year amid the coronavirus pandemic-induced crisis in crude and energy prices. (See TRGP stock analysis on TipRanks)

Meanwhile, Raymond James analyst James Weston on Friday upgraded TRGP to a Strong Buy from Buy and increased the price target to $26 (82% upside potential) from $25, saying that he views the stock as a longer-term call.

“Amid the pandemic, TRGP took decisive action with quick and substantial reductions to cash outflows this spring. This and improving commodity prices and upstream volumes, supported sentiment,” Weston wrote in a note to investors. “While certain operational headwinds persist upstream, we remain fans of the company’s Permian-heavy G&P (Midland, in particular) and integrated footprints – seemingly these are now under-appreciated by the market.”

The analyst believes that Targa should compete for market share well in the current environment, while it also projects to generate positive free cash flow after its dividend this year. Looking ahead, he expects a solid 3Q20 print from TRGP.

“In short, we are defending the stock after recent trading and taking advantage of a compelling entry point (e.g., its 2021E EV/EBITDA multiple of ~7x rests ~2x below C-Corp. peers),” he added.

The rest of the Street is cautiously optimistic on the stock with a Moderate Buy analyst consensus. The $23.88 average price target implies 67% upside potential over the coming year.