Targa Resources (TRGP) has come into focus after reporting record Permian Basin natural gas volumes, strong EBITDA and a sizeable dividend increase to US$1.25 per quarter, paired with expanding processing and export projects.

The stock’s recent news around record Permian volumes and a higher dividend has coincided with strong momentum. It has a 90 day share price return of 27.04% and a one year total shareholder return of 68.86%, pointing to sentiment that has been strengthening rather than fading.

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With Targa Resources now trading near US$259.72 after strong recent returns and a higher dividend, the key question is whether the current price still leaves room for upside or if the market is already pricing in future growth.

Most Popular Narrative: 2% Undervalued

At $259.72, Targa Resources sits slightly below the most followed fair value estimate of about $264. This estimate is built on detailed long term cash flow forecasts.

Targa's strategic focus on long-term, fee-based contracts with blue-chip producers and end-users has driven resilience in cash flows, even amid commodity price volatility, and sets the stage for more predictable, higher free cash flow available for shareholder returns and potential deleveraging.

Want to see what is baked into that fair value gap? The narrative leans on compounded revenue growth, firmer margins and a richer earnings multiple than the wider sector.

Result: Fair Value of $264 (UNDERVALUED)

However, there are still clear risks, including potential midstream overbuild and rising project costs. These factors could pressure margins and challenge the current undervaluation story.

Another View: Multiples Point To A Richer Price

While the SWS narrative and fair value of about $264 suggest modest undervaluation, the P/E ratio tells a different story. At 30.3x versus 15.2x for peers and a fair ratio of 27.5x, the stock screens expensive, which raises the question of whether recent optimism has run ahead of itself.

Next Steps

Mixed signals on value and risks so far? Act while the information is fresh and consider the 3 key rewards and 3 important warning signs

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.