Targa Resources Corp. (TRGP): The Energy Stock Rocketing in 2024

Targa Resources Corp. (NYSE: TRGP) has been on a tear in 2024, with its stock price surging by more than 105% heading into the final trading days of the year. This remarkable performance has crushed the S&P 500, which had a very strong year by delivering a total return of almost 30%. But what's driving this energy stock's rally, and can it continue in 2025?

A Record-Breaking Year

Targa Resources had a very strong year in 2024, delivering record operational volumes and earnings. The company's third-quarter adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) climbed 9% sequentially to a record $1.1 billion. Consequently, the full-year 2024 adjusted EBITDA estimate is likely to be above the top end of the guidance of $3.95 billion to $4.05 billion. This operational success reflects Targa's ability to execute its growth strategy effectively while maintaining core business stability.

Expanding Infrastructure for Sustained Growth

Targa's growth is underpinned by aggressive investments in high-demand infrastructure. Six natural gas processing plants, two fractionators, and an expanded NGL export terminal are on track for completion by 2026, pushing projected annualized EBITDA above $5 billion. These projects position Targa to capture rising demand for natural gas processing and exports, strengthening its revenue streams and ensuring long-term growth potential.

Positive Earnings Momentum

Over the past 60 days, the Zacks Consensus Estimate for Targa’s 2024 earnings rose 6% to $6.26 per share, while the same for 2025 increased 8% to $8.06. Moreover, the company’s expected three-to-five-year earnings per share (EPS) growth rate of 40.5% significantly outpaces the industry average of 24.8%, underscoring its strong earnings outlook.

Hitting an Inflection Point in 2025

Targa Resources has been investing heavily in expanding its midstream network in response to strong demand from its producing customers. The company currently has several additional expansion projects on track to enter commercial service over the next two years. However, while the company has several expansion projects underway, its capital spending should moderate in 2025. This lower capital spending level will free up significant cash, allowing Targa to return more money to investors through dividend increases and share repurchases.

The Fuel to Continue Rallying

Targa Resources has a lot of momentum heading into 2025. The midstream company should continue growing at a solid pace, with its free cash flow surging as capital spending declines. This will give Targa even more money to return to investors, with the company already planning to boost its dividend by another 33% for 2025. These factors could give the pipeline company the fuel to continue rallying in 2025, especially considering that its valuation is right in line with its peers in the midstream sector.

In conclusion, Targa Resources Corp. (TRGP) has had an exceptional year, driven by its expanding infrastructure, positive earnings momentum, and strong operational performance. As the company continues to invest in growth projects and return cash to shareholders, it has the potential to maintain its impressive momentum in 2025. However, investors should keep an eye on the company's capital spending and earnings growth to ensure that its rally is sustainable in the long run.