Targa Resources

Methodology

Targa Resources' fair value calculation can be distorted by the company's MLP structure and complex tax treatment, where reported GAAP earnings differ significantly from distributable cash flow due to depreciation and non-cash charges. Investors should focus on distributable cash flow per unit rather than EPS when applying valuation frameworks to Targa, as the midstream business model emphasizes stable cash generation over accounting profits. The Peter Lynch method has limited applicability without adjustments for the MLP structure.

Methodology

Traditional PEG analysis is problematic for Targa because GAAP earnings growth doesn't reflect the true economics of fee-based midstream infrastructure, where long-term contracts generate predictable cash flows regardless of commodity prices. If using PEG, investors should substitute distributable cash flow growth for EPS growth to capture the business model accurately. Comparing price-to-DCF multiples across midstream peers provides more reliable valuation signals than traditional PEG ratios.

Methodology

Targa pays a substantial distribution as an MLP, but PEGY calculations using GAAP earnings remain misleading due to the disconnect between reported profits and distributable cash flow. Investors should evaluate distribution yield sustainability by examining distributable cash flow coverage ratios rather than relying on PEGY. For midstream MLPs like Targa, yield analysis combined with DCF growth and coverage metrics provides better valuation insight than EPS-based frameworks.