$162.00
$373.00
bear $162.00
base $271.00
bull $373.00
margin of safety $165.00
market price* $294.90
WHAT THE BUSINESS IS. Targa Resources is a Houston-based midstream company built around the Permian Basin of West Texas and southeast New Mexico. Its Gathering and Processing segment collects natural gas from producers' wells and strips out the natural gas liquids (NGLs); its Logistics and Transportation segment moves those NGLs on the Grand Prix and Delaware Express pipelines to Mont Belvieu, Texas, separates them in its fractionators, and ships propane and butane to overseas buyers from the Galena Park Marine Terminal. Downstream contracts are mostly fee-based per barrel; gathering contracts are a mix of fees and percent-of-proceeds terms, so part of the gathering margin moves with gas and NGL prices, partly offset by hedging. OWNER EARNINGS. We start from cash flow from operations, strip out working-capital swings, and deduct stock compensation, maintenance capital spending, cash paid to outside partners in Targa's joint ventures, and (before 2022) preferred dividends. Per share this produced $3.47 (2016), $3.09, $3.31, $3.79, $4.16 (2020, the pandemic year, when earnings still rose), $5.68, $9.37, $11.31, $13.89 and $17.43 (2025). The growth came from volumes, not prices: 2025 NGL and gas prices were well below 2022 levels. Two accounting judgements matter. First, maintenance spending uses the company's own disclosed maintenance capital (about $230 million a year) rather than a revenue-ratio estimate, because Targa's revenue is mostly commodity value passing through and swings with prices, which would misclassify billions of new plants as upkeep. Second, Targa pays almost no cash income tax today (about $13 million in 2025) because it carries $4.4 billion of federal tax losses and writes off new plants immediately for tax purposes; the roughly $2.40 a share of deferred tax in 2025 is added back in the reported figures, so we charge full cash taxes in the later years of every case. STARTING LEVEL. The median of 2023-2025 is $13.89, but that period included sizable payouts to joint-venture partners that Targa bought out for $1.1 billion in 2023 and $1.8 billion in 2025. Owner earnings grew 25.5% in 2025, and the first two quarters of 2026 both set records (operating cash flow up about 20% on the prior year), helped by the $1.25 billion Stakeholder Midstream acquisition closed in the first quarter, the East Driver plant and the Train 11 fractionator. We use about $21.50 a share for 2026, a 23% rise that sits below the 2025 growth rate. BASE CASE ($271). Projects already under construction are finished and partly filled: five Permian plants (Copperhead, Copperhead II, Yeti, Yeti II, Roadrunner III), fractionation Trains 12 and 13, the Speedway NGL pipeline and the Galena Park export expansion. We charge their remaining cost (about $4.5 billion of 2026 growth spending plus roughly $2 billion in 2027) against owner earnings, but credit only half of the new plant capacity with gas to process, because filling it depends on producers keeping up their drilling. Pre-tax owner earnings reach about $26.50 a share by 2029. No further growth is credited after that. Instead we assume Targa then (a) pays full cash tax (around $4.50 a share once the tax losses are used up) and (b) spends about $500 million a year connecting new wells just to keep volumes flat, based on 2021, when roughly $420 million of growth spending was enough to keep Permian volumes rising. That leaves steady owner earnings of about $19.70 a share from 2029 to 2050, falling to zero over the following 15 years as the basin matures. What keeps it going for 25 years is Targa's joined-up chain from wellhead to fractionator to export dock, which has kept its volumes growing through the 2016 and 2020 downturns, and the depth of Permian drilling inventory. BEAR CASE ($162). The same projects are finished and paid for, but the new plants find no extra gas. Permian drilling slows, and throughput falls about 2% a year from 2030. Weaker NGL and gas prices trim percent-of-proceeds margins by about a tenth. Cash taxes arrive in 2028. Refinancing the $19.6 billion of debt (up from $14.2 billion at the end of 2024) costs more. Steady owner earnings start near $14.90 a share, shrink for 16 years, then fade out over 10. Leverage is the reason this case is not higher: the debt is serviceable on today's cash flow but leaves little room if volumes fall. BULL CASE ($373). Targa keeps adding Permian plants at the pace it has kept up for a decade, funding about $2.5 billion a year of growth through 2031. Owner earnings grow about 8% a year to around $36 a share before tax, and tax relief from immediate write-offs lasts longer. After full cash taxes and well-connection spending, owner earnings hold near $28 a share through the mid-2050s, then fade. WHAT COULD MAKE THIS WRONG. The biggest sensitivity is how fast cash taxes arrive and how much spending it truly takes to keep gathering volumes flat. Targa does not disclose its well-connection spending separately, so our $500 million a year is an estimate from past years. A long slump in Permian drilling, or a lasting collapse in NGL export demand, would push value toward the bear case. The debt load (about $19.6 billion at June 30, 2026) makes the downside worse than for a lower-debt peer.