• For investors considering whether Targa Resources at around US$254 per share still offers value, or if most of the opportunity is already reflected in the price, this article looks at what the available numbers indicate.
• The stock has returned 5.6% over the last 7 days, 3.9% over 30 days, 36.1% year to date and 60.7% over 1 year, with a very large 5 year gain that is more than 7 times the starting level.
• These price moves come as Targa Resources continues to attract attention in broader market coverage, with investors examining how its position within the US energy infrastructure space fits into long term portfolios. Recent commentary has placed less emphasis on short term trading and more on whether current expectations are already reflected in the share price.
• Targa Resources currently has a valuation score of 2 out of 6. The sections that follow break down what that means across different valuation methods and introduce an additional way to think about value at the end of the article.

Targa Resources scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Targa Resources Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a business might be worth today by projecting its future cash flows and discounting them back to the present using a required rate of return.

For Targa Resources, the model used is a 2 Stage Free Cash Flow to Equity approach, based on last twelve months free cash flow of about $928.1 million. Analyst estimates and subsequent extrapolations in this model indicate free cash flow reaching about $3.9b by 2030, with annual projections between 2026 and 2035 ranging from a loss of $237.1 million to free cash flow above $5.1b, all converted into present values.

Putting those cash flows together, this DCF model points to an estimated intrinsic value of about $454.79 per share, compared with a current share price around $254. On this basis, the stock is described as 44.1% undervalued according to this specific cash flow model.

Result: UNDERVALUED (per this DCF model)

Our Discounted Cash Flow (DCF) analysis suggests Targa Resources is undervalued by 44.1%. Track this in your watchlist or portfolio, or discover 51 more high quality undervalued stocks.

Approach 2: Targa Resources Price vs Earnings

For a profitable business, the P/E ratio is a straightforward way to see how much you are paying for each dollar of earnings. Investors usually accept a higher P/E when they expect stronger earnings growth or see lower risk, while slower growth or higher risk often lines up with a lower, more conservative P/E.

Targa Resources currently trades on a P/E of 29.66x. That compares with an Oil and Gas industry average P/E of 14.55x and a peer group average of 15.19x, so the stock is priced at a higher multiple than both of those reference points.

Simply Wall St also calculates a proprietary “Fair Ratio” of 27.38x for Targa Resources. This metric aims to estimate a more tailored P/E by factoring in elements such as the company’s earnings growth profile, profit margins, industry, market cap and specific risks, rather than relying only on broad peer or sector averages.

Comparing the current P/E of 29.66x with the Fair Ratio of 27.38x suggests the shares trade somewhat above that tailored level. This indicates that, on this particular metric, the stock appears overvalued.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Targa Resources Narrative

Earlier it was mentioned that there is an even better way to understand valuation. Narratives on Simply Wall St let you connect your view of Targa Resources, such as how its Permian buildout, export projects, competition, regulation, costs and the global energy transition might shape revenue, earnings, margins and dividends, to a clear financial forecast and fair value that sits right next to the current share price. This forecast updates automatically as news and earnings arrive, and can differ widely between investors. For example, some users may build a bullish Targa view closer to the higher US$327 analyst target, while others may build a more cautious view nearer the US$231 target. All of this is available within an easy tool on the Community page that you can use to decide for yourself whether the current price looks high, low or roughly in line with your chosen story.

Do you think there's more to the story for Targa Resources? Head over to our Community to see what others are saying!

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.