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Morningstar | Targa Reports Decent 2Q; 2018 Funding Essentially Addressed

Targa reported a decent second quarter, and we plan to maintain our $62 fair value estimate and no-moat rating. The company's performance is on track to meet our full-year expectations of $1.3 billion in 2018 EBITDA. EBITDA increased 26% from last year's levels to $326 million, as Targa benefited from higher natural gas liquids volumes and prices, particularly in the Midland Permian, where gathering and processing volumes increased 30%. Natural gas liquids prices on a consolidated basis leaped 43% from last year's levels to $0.66 a gallon. Similarly, the marketing and logistics segment benefited from a 22% increase in fractionation volumes and a 23% jump in export volumes. With the Grand Prix NGL pipeline coming on line in the middle of 2019 and another 1.5 billion cubic feet per day of processing capacity starting operations over the same time frame, we expect similarly healthy results in 2019, and EBITDA to reach $1.5 billion.

Targa has also resolved questions over how it would fund its 2018 capital expenditure plan. The firm plans to spend a net amount of $2.2 billion in growth capital expenditures, with another $120 million in maintenance capital expenditures. The Stonepeak joint venture will fund about $550 million, equity issued under the at-the-market program has raised $370 million, asset sales raised $70 million, and the firm raised $1 billion via a debt offering in April. The remaining need is about $330 million, with some more potential asset sales on deck. Targa can either choose to fund the remainder via its newly expanded senior secured revolving credit facility, which has $2.2 billion available, or via its at-the-market equity program. We expect Targa to use both options while working to complete the remaining asset sales.

For more details on our NGL forecast, please see our July report "The Natural Gas Liquids Rubik's Cube Solved."