Shares of Targa Resources (NYSE:TRGP) Corp. TRGP have declined 2.8% since the second-quarter 2020 earnings announcement on Aug 6. Although the bottom line beat the Zacks Consensus Estimate, investors were spooked by the decrease in commodity sales and weaker-than-expected performance of its Logistics and Transportation segment.
Targa Resources reported second-quarter 2020 adjusted net income per share of 21 cents. The Zacks Consensus Estimate was for a loss of 14 cents and the year-ago loss was of 18 cents per share. The outperformance was led by strong volumes across the company’s Permian gathering and processing systems.
The company’s adjusted EBITDA climbed from $306.5 million a year earlier to $351.2 million in the second quarter of 2020.
However, total revenues of $1.5 billion were 24% lower than the year-ago quarter and missed the Zacks Consensus Estimate of $1.6 billion on lower commodity sales, which were down 24% year over year to $1.3 billion. Lower commodity prices also dragged down revenues.
Targa Resources, Inc. Price, Consensus and EPS Surprise
Targa Resources, Inc. price-consensus-eps-surprise-chart | Targa Resources, Inc. Quote
Operational Performance
The Gathering and Processing segment recorded operating margin of $237.2 million during the quarter, up 2% from the $232.1 million achieved in the year-ago period and ahead of the Zacks Consensus Estimate of $214 million. Permian Basin volumes increased 19% year over year to 2,350.5 million cubic feet per day.
In the Logistics and Transportation (or the Downstream) segment, the company reported operating margin of $231.5 million, up 26% year over year. Targa Resources saw fractionation volumes rise from 512.5 thousand barrels per day to 579.3 thousand barrels per day, which is a 13% increase year over year. Moreover, export volumes were up 10% year over year. However, segment operating margin missed the Zacks Consensus Estimate of $261 million due to lower marketing margins and higher operating expenses.
DCF, Capex & Balance Sheet
Second-quarter 2020 distributable cash flow (“DCF”) was $273.7 million, 43% higher than $192 million in the year-ago period. Targa Resources paid out a dividend of 10 cents per share.
Targa Resources spent $142.8 million on growth capex, while its maintenance capex totaled $26.8 million.
As of Jun 30, 2020, the company had $196.2 million in cash and cash equivalents and $7.6 billion in long-term debt. Debt-to-capitalization was approximately 54.7%.
Guidance
Targa Resources reiterated its growth capital spending guidance of $700-$800 million for 2020. The company is still projecting full-year maintenance capex of approximately $130 million, while guiding for a reduction in operating and G&A expenses by more than $100 million.
With the upstream players starting to restore shut-in volumes in response to higher oil prices, Targa Resources now foresees full-year adjusted EBITDA of $1.5-$1.625 billion versus the prior guidance of $1.4-$1.625 billion.
Zacks Rank & Key Picks
Targa Resources carries a Zacks Rank #2 (Buy).
Apart from Targa Resources, investors interested in the energy space could also look at some other options like Murphy USA (NYSE:MUSA) Inc. MUSA, SilverBow Resources (NYSE:SBOW), Inc. SBOW and Royal Dutch Shell (LON:RDSa) plc RDS.A. Murphy USA and SilverBow Resources sport a Zacks Rank #1 (Strong Buy), while Royal Dutch Shell carries a Zacks Rank #2.
You can see the complete list of today’s Zacks #1 Rank stocks here.
The 2020 Zacks Consensus Estimate for Murphy USA indicates 134.2% earnings per share growth over 2019.
Over 30 days, SilverBow Resources has seen the Zacks Consensus Estimate for 2020 increase 21%.
Over 30 days, the Hague, Netherlands-based Shell has seen the Zacks Consensus Estimate for 2020 surge 141.9%.
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