Goldman Sachs’ Stocks With Highest Consensus Returns: 42 Stocks With The Highest Consensus ROE

14. Targa Resources Corp. (NYSE:TRGP)

Consensus ROE: 24%

Number of Hedge Fund Investors in Q2 2024: 39

Targa Resources Corp. (NYSE:TRGP) is a Texas based natural gas infrastructure company.  On the surface, this would imply that the firm has struggled this year as dropping natural gas prices have led to lower gas output and consequently lower demand for natural gas and associated infrastructure. However, in reality, Targa Resources Corp. (NYSE:TRGP)’s shares are up a cool 88% year to date which suggests that something else is brewing under the hood. We don’t have to look too far to find out what this is, as the firm has benefited from its presence in America’s hottest oil producing region, the Permian Basin. Targa Resources Corp. (NYSE:TRGP)’s presence in the Permian has allowed it to benefit from a growth in gas production there. Permian accounted for 5.8% of America’s gas production in 2011, and in 2022, its share jumped to 18.6%. Targa Resources Corp. (NYSE:TRGP) also benefits from the fact that it operates in the gas marketing business. This enables it to avoid supply chain bullwhips to an extent and gauge the demand for gas early on to ensure it does not over or under invest in capacity.

Since Permian is quite important to Targa Resources Corp. (NYSE:TRGP)’s operations, here’s what management had to say about it during the Q2 2024 earnings call:

“Activity in the Permian remains very strong, supporting our view of continued long-term growth from the basin. Our Permian volumes during the second quarter increased about 275 million cubic feet per day over the first quarter, which is a full plant. And year-over-year, our volumes in the Permian are up more than 600 million cubic feet per day. And currently, our volumes in the Permian are up another 200 million cubic feet per day compared to the second quarter. We expected strong growth from our Permian assets, but the growth we have seen this year has exceeded our expectations.

We now expect low double-digit percentage volume growth this year, which sets us up well for meaningful growth in 2025 and beyond. This higher growth rate is driving incremental EBITDA and requiring additional growth capital investment. These volumes are core to our business, and we benefit across the integrated NGL value chain, driving higher margins into our downstream business and generating strong ROIC. Given higher-than-anticipated Permian volumes and an outlook for continued strong activity across our Midland and Delaware footprint, we announced our next two plants in the Permian, one in the Midland Basin and another in the Delaware Basin. Some spending for these plans was included in the forecast we provided back in February, but the timing and cadence of spending has accelerated.”