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Targa (TRGP) Stock Leaves No Mark Despite Beating on Q3 Earnings

Shares of Targa Resources Corp. TRGP have shown no significant change since the third-quarter 2021 earnings release on Nov 4.

Despite TRGP’s raised adjusted EBITDA guidance for 2021 owing to anexcellent business performance and its plan to maximize capital returns to its shareholders by increasing dividends and share repurchases, the stock failed to display an uptrend.

Behind the Earnings Headlines

Targa Resourcesreported third-quarter 2021 adjusted net income per share of 66 cents, beating the Zacks Consensus Estimate of 41 cents and increasing 312.5% year over year, attributable to higher commodity price realization and increased Permian volumes across Targa’s Gathering and Processing plus Logistics and Transportation systems during the third quarter.

Adjusted EBITDA rose from $419.1 million a year earlier to $505.9 million in the third quarter of 2021.

Total revenues of $4.5 billion were 110.9% higher than the year-ago quarter’s level and also outpaced the Zacks Consensus Estimate of $3.62 billion.

Operational Performance

The Gathering and Processing segment recorded an operating margin of $361.4 million during the quarter, up 38% from $261 million achieved in the year-ago period. Moreover, Permian Basin volumes expanded year over year to 2,951.9 million cubic feet per day.

In the Logistics and Transportation (or the Downstream) segment, the company reported an operating margin of $280.7 million, marginally up year over year. Targa Resources saw a pipeline throughput rise from 300.9 thousand barrels per day (mbpd) to 416.5 mbpd, surging 38% year over year. However, export volumes fell 5% year over year while natural gas liquids sale rose 18% year over year.

DCF, Capex & Balance Sheet

Third-quarter 2021 distributable cash flow (DCF) was $383.9 million, 30.3% above $294.7 million in the year-ago period. Targa Resources paid out a dividend of 10 cents per share.

As of Sep 30, 2020, TRGP had $228.6 million of cash and cash equivalents and $6.43 billion of long-term debt. Debt-to-capitalization was 52.5%.

Guidance

For 2021, Targa Resources projects its growth-driving capital spending guidance to be around $450 million. Full-year maintenance capex is reiterated to be around $120 million.

Given the energy player’s excellent business performance as well as a more bullish commodity pricing estimate for the remaining year, Targa Resources anticipates 2021 adjusted EBITDA to surpass the upper end of the previous view of $1.9-$2 billion band.

Targa Resourcesproposes to recommend to its board of directors an increase in its common dividend to 35 cents per common share or $1.40, annually, for the fourth quarter of 2021. The suggested increase in the common dividend per share is projected to take effect in the fourth quarter of 2021 and be paid in February 2022.

Zacks Rank & Key Picks

Targa Resources currently carries a Zacks Rank #3 (Hold). Some better-ranked players in the  energy  space are are EOG Resources EOG, Diamondback Energy FANG and ConocoPhillips COP, each presently flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

EOG Resources reported third-quarter 2021 adjusted earnings per share of $2.16, beating the Zacks Consensus Estimate of $2.01. Strong earnings were driven by increased production volumes and a higher realization of commodity prices.

EOG announced a quarterly dividend of 75 cents per share, indicating an 82% increase from the previous level. The dividend will be paid out on Jan 28, 2022, to its shareholders of record as of Jan 14, 2022. EOG Resources also declared a special dividend of $2 per share. Moreover, the board of directors updated its share repurchase authorization to $5 billion.

Diamondback Energy reported third-quarter 2021 adjusted earnings of $2.94 per share, which surpassed the Zacks Consensus Estimate of $2.81 and the year-ago quarter’s earnings of 62 cents. FANG’s bottom line was aided by better-than-expected production.

The board of directors declared a dividend of 50 cents per share for the third quarter, raising the level by 11.1% from the previous payout of 45 cents. The amount will be paid out on Nov 18, 2021, to its shareholders of record as of Nov 11. FANG also generated a free cash flow of $740 million in the third quarter.

ConocoPhillips reported third-quarter 2021 adjusted earnings per share of $1.77, comfortably beating the Zacks Consensus Estimate of $1.53. This outperformance is led by increased production volumes owing to the Concho acquisition and rising realized commodity prices.

Based in Houston, TX, this one of the world’s largest independent oil and gas producers’ capital expenditures and investments totaled $1.3 billion, and dividend payments grossed $579 million. ConocoPhillips’ net cash provided by operating activities was recorded at $4.8 billion, up from the year-ago figure of $868 million. COP generated a free cash flow of $2.8 billion in the third quarter.

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