01—Abstract
Summary
Summary of the 8-K filed February 15, 2024. Cited figures are marked; the original filing is the authoritative source.
Targa Resources Corp. (TRGP) reported record fourth quarter and full year 2023 results, with full-year net income attributable to Targa of $1,345.9 milliona (up 13% from $1,195.5 million in 2022) and record full-year adjusted EBITDA of $3,530.0 million, up 22% year over year.
Fourth-quarter adjusted EBITDA reached $959.9 millionb, a 14% sequential increase, driven by record Permian gathering volumes, record NGL pipeline, fractionation and LPG export volumes, and higher marketing margin. Management highlighted that these results came despite a significantly lower commodity price environment, which it attributes to the resiliency of its diversified, increasingly fee-based midstream model, with roughly 90% of G&P volumes now fee or fee-floor based. Full-year commodity sales fell 27% to $13.96 billion on lower NGL and natural gas prices, while fees from midstream services rose 13%.
Looking forward, Targa guided 2024 adjusted EBITDA to $3.7c–$3.9 billion (about 8% growth at the midpoint) and net growth capex of $2.3–$2.5 billion, with several major Permian plants, two fractionators and the Daytona NGL Pipeline expected to come online. The company also intends to recommend raising the quarterly common dividend to $0.75 per share, an annualized $3.00 (a 50% increase), payable starting May 2024. For 2025, management estimates net growth capex falls to about $1.4 billion, which it expects to drive a significant EBITDA increase, meaningful adjusted free cash flow and leverage within its 3–4x target range, supporting continued dividend growth and buybacks.
Investors should weigh the strong capital return and growth narrative against the forward-looking nature of the guidance and the sensitivity of results to commodity prices, even with the fee-based mix. Full-year adjusted free cash flow of $392.7 milliond was well below 2022's $1,101.5 million because growth spending rose sharply to $2.2 billion, so the 2025 free cash flow inflection is central to the investment case. Non-GAAP measures used here are supplemental and reconciled to GAAP in the filing.
02—Key points
Key Highlights
- Record full-year 2023 adjusted EBITDA of $3,530.0 million, up 22% from $2,901.1 million in 2022, and record Q4 adjusted EBITDA of $959.9 million, up 14% sequentially.
- Full-year 2023 net income attributable to Targa Resources Corp. of $1,345.9 million, a record, versus $1,195.5 million in 2022.
- Full-year adjusted free cash flow fell to $392.7 million from $1,101.5 million, as growth capex rose to $2,224.5 million from $1,177.2 million.
- 2024 guidance: adjusted EBITDA of $3.7–$3.9 billion (about 8% growth at midpoint) and net growth capex of $2.3–$2.5 billion.
- Planned dividend increase to $0.75 per quarter ($3.00 annualized, a 50% increase), subject to Board approval, payable May 2024.
- 2025 outlook: net growth capex of roughly $1.4 billion, with expected meaningful adjusted free cash flow generation and leverage within the 3–4x target range.
- Approximately 90% of G&P volumes were fee or fee-floor based at year-end 2023, supporting cash flow stability against commodity price declines.
- Share repurchases totaled $373.7 million in 2023, with $770.1 million remaining under the $1.0 billion authorization.
03—Questions
Frequently Asked Questions
How did Targa perform in 2023 despite lower commodity prices?
Targa delivered record full-year adjusted EBITDA of $3,530.0 million (up 22%) and record net income attributable to the company of $1,345.9 million. Growth came from record Permian gathering volumes, higher NGL pipeline, fractionation and LPG export volumes, and a larger fee-based revenue base, which offset lower NGL and natural gas prices.
Is the 2024 dividend increase confirmed?
Not yet. Targa stated it intends to recommend to its Board an increase to $0.75 per share quarterly ($3.00 annualized) for the first quarter of 2024, payable in May 2024. The increase is subject to Board approval, and the company said it expects to continue increasing capital returns beyond 2024.
Why did adjusted free cash flow decline sharply in 2023?
Adjusted free cash flow fell to $392.7 million from $1,101.5 million mainly because growth capital expenditures roughly doubled to $2,224.5 million. Distributable cash flow rose 15% to $2,617.2 million, so the decline reflects heavy investment in Permian plants, fractionators and pipeline projects that management expects to generate returns in 2024 and 2025.
What drives the expected 2025 improvement?
Management expects net growth capex to fall to about $1.4 billion in 2025 as major fractionation and NGL pipeline expansions are completed by early 2025. Combined with significant expected EBITDA growth from projects placed in service in 2024 and early 2025, this should produce meaningful adjusted free cash flow and support continued dividend growth and buybacks.
How exposed is Targa to commodity price swings?
Targa said about 90% of its G&P volumes are fee or fee-floor based at the end of 2023, which provides protection against further price declines. However, commodity sales still represented most of 2023 revenue ($13.96 billion of $16.06 billion), and the 2024 guidance assumes Waha gas at $1.80/MMBtu, NGL composite at $0.65/gallon and crude at $75/barrel, so price changes remain a relevant risk.
04—Continue