TARGA RESOURCES CORP. (TRGP) valuation

0 · TTM reconstruction (anchor: Q12026, 2026-03-31)

The latest filing is a 10-Q, so "base year" revenue / EBIT / OCF / CapEx are reconstructed as trailing-twelve-month values. Per-quarter facts (typical for income-statement items) get summed across four quarters; YTD-cumulative facts (typical for cash-flow items) use prior FY + YTD_now − YTD_{prior year same quarter}.

Revenue

Sum of the four most recent per-quarter values

• Q1 FY26 (2026-03-31): $4.09B
• Q4 FY25 (2025-12-31): $4.06B
• Q3 FY25 (2025-09-30): $4.15B
• Q2 FY25 (2025-06-30): $4.26B
• = $16.56B

EBIT

Sum of the four most recent per-quarter values

• Q1 FY26 (2026-03-31): $846.9M
• Q4 FY25 (2025-12-31): $917.4M
• Q3 FY25 (2025-09-30): $836.9M
• Q2 FY25 (2025-06-30): $1.03B
• = $3.63B

OCF

Prior FY + current-quarter YTD − same-quarter-prior-year YTD

• FY FY25 (2025-12-31): +$3.92B
• Q1 FY26 (2026-03-31) YTD: +$739.5M
• Q1 FY25 (2025-03-31) YTD: −$954.4M
• = $3.70B

CapEx

Prior FY + current-quarter YTD − same-quarter-prior-year YTD

• FY FY25 (2025-12-31): +$3.33B
• Q1 FY26 (2026-03-31) YTD: +$899.5M
• Q1 FY25 (2025-03-31) YTD: −$792.2M
• = $3.44B

Stock-based compensation

Prior FY + current-quarter YTD − same-quarter-prior-year YTD

• FY FY25 (2025-12-31): +$69.5M
• Q1 FY26 (2026-03-31) YTD: +$23.2M
• Q1 FY25 (2025-03-31) YTD: −$17.6M
• = $75.1M

Prior-year TTM revenue (growth-calc baseline)

Sum of the four most recent per-quarter values

• Q1 FY25 (2025-03-31): $4.56B
• Q4 FY24 (2024-12-31): $4.41B
• Q3 FY24 (2024-09-30): $3.85B
• Q2 FY24 (2024-06-30): $3.56B
• = $16.38B

1 · Enterprise-value target (what the DCF must match)

Diluted shares = point-in-time basic × 1.0033× (filer's TSM dilution multiplier from WeightedAverageNumberOfDilutedSharesOutstanding ÷ WeightedAverageNumberOfSharesOutstandingBasic , period ending 2026-03-31 ). See the diluted-shares methodology.

Noncontrolling interest = book NCI on the consolidated BS ( MinorityInterest $132.5M ). Subtracted from the equity bridge so per-share fair value reflects the common-shareholder claim only. See the NCI methodology.

Cash is split into the operating floor an operating business needs (2% of revenue, Damodaran heuristic) and the distributable surplus that flows to equity holders. Only excess cash is netted against debt because the DCF values the operating business, and the operating cash stays inside it. Banks, insurers, and REITs are exempt — their cash backs deposits / regulatory reserves / investment portfolios rather than working capital. See the methodology.

Market cap     = price × diluted shares
               = $250.73 × 215.4M
               = $54.01B

Total cash     = $100.1M
Operating cash = 2% × revenue = $331.2M
Excess cash    = max(0, total − operating) = $0

EV target      = market cap + total debt + NCI − excess cash
               = $54.01B + $19.48B + $132.5M − $0
               = $73.63B
            

2 · Starting NOPAT (base year 0)

Tax rate source: 3-year median of EffectiveTaxRate. See the tax-rate methodology for the precedence ladder.

Tax rate fades from 19.8% at year 0 to 21.0% at year 10 (US federal statutory floor). The current effective rate is the most honest reading of this filer's recent economics, but holding it as the perpetuity rate would compound a one-off NOL benefit / R&D credit / foreign-mix tilt across the whole horizon. WACC's after-tax cost of debt uses the terminal rate so the discount rate is consistent with the long-run cash flows it discounts.

GAAP EBIT          = $3.63B   (21.9% of revenue)
× (1 − tax rate)  = × (1 − 19.8%) = × 0.8016
= NOPAT₀            = $2.91B
            

3 · Invested capital & starting ROIC

Net deferred-tax position (-$1.48B net DTL) stripped from IC. DTAs (NOL / credit carryforwards, post valuation allowance) and DTLs (timing differences from accelerated depreciation) are tax-accounting artifacts, not capital deployed in operations — equity-based IC inadvertently absorbs them via E = Assets − Liabilities, so we back them out so ROIC reflects operating returns on operating capital.

Invested capital = total debt + book equity − excess cash − net deferred tax (−DTL)
                 = $19.48B + $3.14B − $0 − -$1.48B
                 = $24.09B

Raw ROIC₀        = NOPAT₀ / Invested capital
                 = $2.91B / $24.09B
                 = 12.1%
(no cap applied; raw value is within the 40.0% ceiling)
            

4 · WACC derivation

Cost of equity from CAPM , after-tax cost of debt measured directly as TTM cash interest paid divided by average total debt (the cash-flow walkback path — bypasses the synthetic coverage table because debt is material and the cash flow statement carries a usable InterestPaidNet figure) , weighted by market values of equity and debt. Inputs: Rf is FRED DGS10's 90-day mean (latest 2026-05-29); β is the 5-yr weekly regression vs VOO, floored at 1.00 for the cost-of-equity step (the empirical security market line is much flatter than CAPM predicts — Frazzini-Pedersen 2014, "Betting Against Beta" — so unfloored CAPM systematically under-estimates required return for low-β filers); ERP is the latest Damodaran US total ERP (2026-01-01). See cost-of-debt methodology for why the walkback path is the more honest input for the leveraged-asset cohort (cable, telecom, auto, utility-adjacent industrials).

Cost of equity        = Rf + β × ERP
                      = 4.3% + 1.00 × 4.5%   (β floored from raw 0.73 to 1.00)
                      = 8.8%

Cost of debt (pretax) = TTM cash interest paid ÷ avg total debt
                      = $836.4M ÷ $16.24B   (avg of 2025-12-31: $17.90B and 2024-12-31: $14.59B)
                      = 5.1%   (cash-flow walkback; bypasses synthetic coverage table)
× (1 − tax rate)      = × (1 − 19.8%)
= Cost of debt (a/t)  = 4.1%

Weights               E/V = 73.4%, D/V = 26.6%

WACC (raw)            = E/V × cost_e + D/V × cost_d_after_tax
                      = 73.4% × 8.8% + 26.6% × 4.1%
                      = 7.5%

Sensitivity: without β floor
WACC                  = 73.4% × 7.6% + 26.6% × 4.1%
                      = 6.7%   (β = raw 0.73; +87 bps vs headline — what unfloored CAPM would print)
                

5 · Growth path construction

Source       = analyst consensus (absolute forecast, TTM-anchored): Y1 = 21.8%, Y2 = 12.4%

Detailed derivation:
  Current-FY analyst avg revenue forecast = $20.17B   (FY-over-FY vs FY2025 actual = 18.5%)
  Next-FY analyst avg revenue forecast    = $22.68B   (FY-over-FY vs current-FY forecast = 12.4%)
  Base revenue (TTM) = $16.56B
  Latest completed FY revenue (FY2025) = $17.03B   (denominator for the FY-over-FY check above)

  Y1 = current-FY forecast / TTM base revenue − 1
     = $20.17B / $16.56B − 1
     = 21.8%

  Y2 = next-FY forecast / current-FY forecast − 1
     = $22.68B / $20.17B − 1
     = 12.4%

  Note: the absolute analyst forecast is re-anchored
  against TTM (rather than the FY-over-FY consensus
  rate above) because the TTM base spans the current
  FY only partway. Re-anchoring keeps the growth rate
  consistent with the projection's starting revenue
  level.
Clamp        = [2.5%, 60%] (no sub-terminal or 60%+ starts)
Plateau rate = 12.4% (Y2 — held from year 2 through end of plateau)
Tier         = 3 years (rule: plateau rate < 15% → 3y, < 25% → 5y, else 7y)
Plateau      = 3 years
Fade         = linear from effective Y2 to terminal 2.5% across the remaining 7 years

Effective Y1 growth after solver bumps = 21.8%
Effective Y2 growth after solver bumps = 12.4%
Growth by year:
  Y1 = 21.8%
  Y2 = 12.4%
  Y3 = 12.4%
  Y4 = 11.0%
  Y5 = 9.6%
  Y6 = 8.2%
  Y7 = 6.8%
  Y8 = 5.3%
  Y9 = 3.9%
  Y10 = 2.5%
                

6 · Margin path construction

Starting margin (Y0) = 21.9%   (source: TTM EBIT margin (GAAP) — within 4pp of 3-yr mean)
Target margin (Y10)  = 25.9%   (solver output, normal band)
Year-t margin        = starting + (target − starting) × (t / 10)
Margin by year:
  Y1 = 22.3%
  Y2 = 22.7%
  Y3 = 23.1%
  Y4 = 23.5%
  Y5 = 23.9%
  Y6 = 24.3%
  Y7 = 24.7%
  Y8 = 25.1%
  Y9 = 25.5%
  Y10 = 25.9%

Filer-history margin distribution (10 FY, trimmed-10-90):
  p25 = 2.1%, p50 = 4.0%, p75 = 11.3%
  raw min = -19.0%, raw max = 19.6%
Path-stretch sub-counts:
  10 of 10 years above filer p75 (11.3%)
  10 of 10 years above filer max-ever (19.6%)
  Terminal/start ratio = 118%
Binding trigger = unprecedented-margin (drives the page badge)
            

7 · ROIC path construction

The capex heuristic compares latest-period CapEx ($3.44B) against the Normalized CapEx (3-yr mean) of $2.89B — mean of the last three annual CapEx values. When the latest is above 1.4× that mean and CapEx is at least 5% of revenue, we treat the filer as capital-intensive and mid-investment, hold ROIC flat for a 5-year harvest phase, and only then fade to terminal ROIC. The 3-yr mean does not feed the DCF directly — it only gates this flag.

Capex-heuristic inactive (latest CapEx 1.19× the 3-yr mean of $2.89B — below the 1.4× / 5%-of-revenue gates).
Fade from Y1: ROIC_t = ROIC₀ + (ROIC_terminal − ROIC₀) × (t / 10)
ROIC₀ = 12.1%; ROIC_terminal = 7.5%

ROIC by year:
  Y1 = 11.6%
  Y2 = 11.2%
  Y3 = 10.7%
  Y4 = 10.3%
  Y5 = 9.8%
  Y6 = 9.4%
  Y7 = 8.9%
  Y8 = 8.5%
  Y9 = 8.0%
  Y10 = 7.5%
            

7a · Reinvestment formula

The Damodaran growth-firm closure Reinvestment_t = ΔRevenue_t ÷ salesToCapital collapses to noise whenever EITHER the 3-year revenue change OR the 3-year net reinvestment is small relative to the revenue base. The model picks the most-honest formula via a 3-tier ladder: tier-1 standard sales-to-capital fires only when both signals carry magnitude AND the resulting ratio sits inside the typical 0.5–8 band; tier-2 substitutes a TTM (CapEx − D&A) ÷ Revenue ratio applied to each projection year's revenue (not its delta); tier-3 falls through to the ΔNOPAT ÷ ROIC closure when neither signal is usable.

Inputs:
  ΔRev_3y                          = -$3.26B
  netReinvest_3y (CapEx − D&A)     = $4.42B
  avgRevenue_3y                    = $18.19B
  TTM CapEx − D&A                  = $1.87B
  TTM Revenue                      = $16.56B

Tier-1 gates (all three must clear):
  |ΔRev_3y| / avgRev_3y > 1.0%     17.92%         ✓ pass
  netReinv_3y / avgRev_3y > 1.5%   24.28%         ✓ pass
  0.5 ≤ s2c candidate ≤ 8          n/a            ✗ fail

Tier-2 fires (gate failed: no-candidate). Substituting CapEx-of-revenue heuristic.
  capexOfRevenueRatio (raw)        = 11.27%
  capexOfRevenueRatio (used)       = 11.27%
  Reinvestment_t = Revenue_t × 11.27%
            

8 · Solver iterations

Each row is one configuration in the solver ladder; the "Solved margin" column is the result of bisecting the EBIT margin (up to 80 inner iterations) to match the EV target for that row's plateau / Y1 bump / phase. The solver sweeps Y1 growth bumps 0pp → +20pp across the plateau ladder inside the normal margin bracket, then — if nothing reconciles — repeats the same sweep in a widened margin band ([-10%, 80%]). The first feasible row is the one the page uses. If no combination reconciles, the page shows the row whose PV sits closest to the target EV so both levers are balanced.

9 · Terminal value derivation

NOPAT_{N+1}         = NOPAT_{10} × (1 + g_terminal)
                    = $8.23B × (1 + 2.5%)
                    = $8.44B

ΔNOPAT              = NOPAT_{N+1} − NOPAT_{10}
                    = $205.8M
Reinvestment_{N+1}  = ΔNOPAT / ROIC_terminal
                    = $205.8M / 7.5%
                    = $2.73B

FCF_{N+1}           = NOPAT_{N+1} − Reinvestment_{N+1}
                    = $8.44B − $2.73B
                    = $5.71B

Terminal value (TV) = FCF_{N+1} / (WACC − g_terminal)
                    = $5.71B / (7.5% − 2.5%)
                    = $113.18B

PV(TV)              = TV / (1 + WACC)^(10 − 0.5)
                    = $113.18B / 1.996
                    = $56.71B

10 · Reconciliation check (DCF PV vs. the market)

This isn't a fair value — it's the inverse check. The solver built the scenario so that DCF PV reproduces the current enterprise value; if the normal bracket worked the delta below is ~0 by construction. A non-zero delta only appears when the solver fell through to the widened margin band.

Σ PV(FCF_1..10) = $16.92B
+ PV(TV)          = $56.71B
= Enterprise value = $73.63B   (≈ EV target $73.63B by construction)
− Total debt      = $19.48B
+ Excess cash     = $0   (total $100.1M − operating $331.2M)
− NCI             = $132.5M
= Equity value    = $54.01B
÷ Diluted shares  = 215.4M
= DCF PV / share  = $250.73

Market price      = $250.73
Reconciliation Δ  = −0.0%   (≈ 0 by construction — the solver anchored on this price)