Targa Resources Corp. TRGP has experienced a notable 29.1% increase in its share price in the past six months, a remarkable performance when compared with the broader oil and energy sector, which has remained stagnant at 0%. Even within its specific Oil and Gas Refining and Marketing sub-industry, which has gained 16%, TRGP has shown exceptional performance. While peers such as Sunoco SUN, Western Midstream Partners WES and NGL Energy Partners NGL have lagged, TRGP continues to perform strongly. This raises an important question for investors: should investors seize the opportunity now, or wait for a more favorable moment to invest?

Six-Month Price Performance Comparison

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TRGP has become a key player in the energy infrastructure world. Based in Houston, TX, the company specializes in services related to natural gas, from gathering and processing to compressing, treating and selling it. What really sets TRGP apart is its prime location in Mont Belvieu, TX, home to the world’s largest natural gas liquids (“NGL”) hub. Here, TRGP operates with a huge fractionation capacity of around 938,000 barrels per day.

On top of that, TRGP runs cutting-edge LPG export facilities at its Galena Park Marine Terminal, which is well-connected to Mont Belvieu. The company also has a strong presence in the Permian Basin, a major energy production area, supported by its Grand Prix NGL pipeline, which moves processed natural gas to fractionation and export facilities. With two main business segments, Gathering and Processing, and Logistics and Transportation, TRGP is in a great position to navigate the shifting energy market.

In simple terms, TRGP makes money by charging fees for transporting, processing and storing natural gas, NGLs and crude oil. So, what is driving Targa’s growth? Let us take a closer look at what is behind its strong performance and whether this momentum is likely to continue or not.

What is Favoring TRGP Stock?

Record-High Financial Performance: TRGP achieved record adjusted EBITDA of $4.1 billion in 2024, a 17% year-over-year increase, driven by robust operations across its Permian, NGL transportation, fractionation and LPG export businesses. This strong financial performance showcases the company's ability to generate stable cash flows, making it an attractive investment for those seeking exposure to a growing midstream energy player.

Expanding Infrastructure and Growth Investments: TRGP continues to expand its infrastructure with major projects such as the Delaware Express pipeline expansion, Train 12 fractionator and the GPMT LPG Export Expansion. These projects, backed by a $2.6 billion to $2.8 billion capital investment in 2025, aim to support growing Permian volumes and strengthen long-term earnings potential.

Favorable Fee-Based Revenue Model: More than 90% of Targa’s expected 2025 revenues come from fee-based contracts, insulating it from commodity price volatility. This predictable revenue stream enhances earnings stability and reduces exposure to fluctuating energy prices.

Strong Demand for NGLs and LNG Exports: The company is well-positioned to benefit from increasing global demand for U.S. NGLs and liquefied natural gas (“LNG”). With record pipeline transportation, fractionation and LPG export volumes in 2024, Targa’s assets provide exposure to an expanding global energy market.

Strong Position in the Evolving U.S. Energy Landscape: The shift toward a more energy-diverse world has increased global demand for U.S. natural gas liquids, which are critical for petrochemical and industrial applications. Targa’s infrastructure, including pipelines, processing plants and export terminals, is well-positioned to meet this demand. As energy markets evolve, the company’s investments in high-growth regions like the Permian Basin will allow it to capture additional market share while supporting the continued global reliance on U.S. energy exports.

Potential Risks for TRGP Stock

Regulatory and Environmental Uncertainties: TRGP operates in a sector facing heightened regulatory scrutiny, with potential risks from new emissions regulations, carbon pricing mechanisms or policies favoring renewable energy over fossil fuels. Such changes could lead to higher compliance costs or restrictions on future expansions.

Increasing Competition in the NGL Export Market: The global NGL market is becoming increasingly competitive, with new export facilities and pipelines being developed by major energy companies. This growing competition could lead to pricing pressures, reducing margins for Targa’s export business. While the company is expanding infrastructure, it must continue to secure long-term contracts to avoid overcapacity risks. If new entrants aggressively price their services, TRGP may struggle to maintain its current profitability in the NGL export market.

Potential Execution Risks With Large-Scale Projects: TRGP has committed billions of dollars to large-scale infrastructure projects, which come with execution risks, including delays, cost overruns and regulatory hurdles. If these projects fail to meet expected timelines or budgets, the company could face financial strain.

Valuation and Share Growth Raise Concerns: Targa’s current EV/EBITDA ratio of 14.39 is significantly higher than the sub-industry average of 10.95, suggesting the stock may be overvalued. This raises concerns about the sustainability of its current valuation, especially if future earnings fall short of expectations, which could lead to a sharp correction. Furthermore, the stock’s 29.1% gain in the past six months suggests that much of its growth may already be priced in.

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Exposure to Economic Downturns and Credit Markets: Although TRGP operates a largely fee-based business, a significant economic downturn could weaken industrial demand for natural gas liquids. This could affect contract renewals, pricing power and overall revenue growth. Additionally, the company’s reliance on debt to fund expansion projects makes it vulnerable to rising interest rates or tightening credit markets. If borrowing costs increase significantly, Targa’s ability to finance growth while maintaining strong shareholder returns could be impacted.

Final Thoughts on TRGP Stock

Targa has delivered strong financial results, with record-high EBITDA and robust growth across core businesses, making it an attractive investment in the midstream energy sector. Its expanding infrastructure projects and favorable fee-based revenue model provide stability and exposure to growing global demand for NGLs and LNG. However, risks include regulatory uncertainties, increasing competition in the NGL export market and potential execution challenges with large-scale projects. Additionally, its high valuation and exposure to economic downturns and rising borrowing costs could pose risks to long-term growth and profitability.

Given this mix of strengths and potential challenges, investors should wait for a more opportune entry point instead of adding this Zacks Rank #3 (Hold) stock to their portfolios. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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