Targa Resources Corp. (NYSE:TRGP) has significantly outperformed the wider market this year, posting gains of over 56% since the beginning of 2026. A major catalyst behind this growth was the 20-year fee-based agreement that the company signed with ExxonMobil last month.
While there are concerns that the stock’s rally may have topped out, the analysts over at TD Cowen see further growth ahead. On September 18, the firm upgraded TRGP from ‘Hold’ to Buy’, while also boosting its price target from $275 to $350. The revised target implies an upside of almost 20% from the current levels and even exceeds the stock’s record high of just under $308 achieved last month.
TD Cowen cited Targa’s expected Permian Basin wet gas growth and peer-leading EBITDA growth for the upgrade. The analyst expects the company’s free cash flow yield to rise from 6% in 2026 to more than 10% in 2028, compared with an estimated 8.5% FCF yield for peers in 2030. The improvement is expected to be driven by EBITDA growth from new processing plants and the completion of a major capital project in the Speedway NGL pipeline.
Exxon Deal Adds Fuel to Targa’s Growth:
According to TD Cowen, a key driver for Targa’s growth is the rising wet gas production in the Permian, which means that the analyst’s thesis is tied to physical volume growth rather than simply a higher-commodity price assumption.
Targa’s recently announced deal with ExxonMobil provides greater visibility into future volumes and infrastructure demand. The company has also planned three new natural gas processing plants in the Permian Delaware as part of the deal, with an aggregate capacity of roughly 825 MMcf/day. Targa expects this agreement to add significantly to its “strong growth rate well into the next decade and bolster its outlook for durable and growing adjusted free cash flow over the long term”.
Targa’s strong recent performance also supports the upgrade. The company topped expectations and reported a record second-quarter adjusted EBITDA of $1.60 billion, up 38% from a year earlier. The midstream operator now expects its full-year 2026 adjusted EBITDA to be at the top end of its previous $5.7 billion to $5.9 billion guidance range, driven by stronger marketing margins in the first half of the year and continued growth in volumes across its integrated asset network.
Facing a Costly Growth Push:
A primary concern for Targa Resources is that the expected volume growth requires a substantial capital investment before it fully translates into free cash flows. The company recently raised its growth capital estimates for FY2026 to $5 billion, reflecting investments in the new Delaware processing plants, associated field capital, and the Bull Run II pipeline.
There is also an execution risk, as the company currently has several projects under construction. Any delays or cost overruns could reduce returns on the company’s growth capital program.
Conclusion:
TD Cowen’s improved outlook for Targa Resources underscores the company’s strong growth outlook, supported by rising Permian volumes and robust EBITDA growth. While the elevated capital spending and execution remain key concerns, the company’s strong earnings and improving free cash flow outlook provide a solid foundation for further upside.
Market Sentiment:
Targa Resources Corp. was held by 54 hedge funds at the end of Q2 2026 in the Insider Monkey database, with a total investment value of just over $1.7 billion. This is up from 49 hedge fund investors with a cumulative stake value of approximately $1.6 billion in the previous quarter.
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This article is originally published at Insider Monkey.
