Targa’s Q4 Delivers Strong Growth, and 2023 Guidance Delivers More of the Same

Targa’s TRGP aggressive investments continue to pay off in this robust oil and gas market as full-year 2022 EBITDA of $2.9 billion was up 41% over 2021 levels, and 2023 guidance calls for more growth with another 24% increase. 2023 EBITDA guidance at a midpoint of $3.6 billion is slightly above our $3.5 billion forecast. Targa hasn’t been shy about putting capital to work with at least $6 billion in capital investment since 2018, which is sizable compared with the $14 billion of property, plant, and equipment on its balance sheet in the third quarter. At first glance, we maintain our $64 per share fair value estimate and no-moat rating.

Growth is driven by higher commodity pricing and sharply higher volumes, particularly in the Permian. Permian gas volumes are up 57% in the fourth quarter compared with last year’s, goosed partly by the recently completed Lucid acquisition, which added assets in the Delaware basin. Natural gas liquids production more than tripled over the same time frame. This growth flows through to the logistics unit, where the operating margin has increased 25% from last year’s fourth quarter on a 23% increase in natural gas liquids pipeline volumes, as Targa effectively moves its molecules on its Grand Prix pipe. 2023 growth calls for more of the same with Targa guiding toward at least a 10% increase in its Permian gathering and processing volumes off fourth-quarter levels, which would feed through to a similar rise in pipeline volumes, in our view.

Supporting this growth will, again, require a sizable capital commitment. Targa just acquired the remaining 25% of the Grand Prix pipeline it did not own for $1.05 billion in January 2023. Growth capital spending for 2023 is set at a midpoint of $1.85 billion compared with our $1.3 billion forecast, as Targa continues to pour more money into expanding Permian gathering and processing capacity.