On the four Ms, Targa Resources earns 64 for management and 49 for moat. The management score rests on a return on invested capital of 12.1% and a gross margin of 26.5% — figures that describe a business earning a respectable return on what it employs. The balance sheet carries debt at 5.72x equity, which magnifies both the returns above and the risk beneath them. A moderate moat alongside strong management is a combination worth understanding before the price matters at all.
Three independent anchors set the price worth paying. Growth is modelled at 15.0% a year, below the 16.0% actually measured over the last decade — the model caps growth rather than extrapolating a good run forwards. The exit multiple assumed is 30.0x. That produces an intrinsic value of $315.00, a 10-CAP price of $83.92 and a payback time price of $132.47, with the value zone set at the highest of the three, $157.50. Today's price of $279.31 is 77% above it.
The price is above the value zone and the business scores 49 for moat and 64 for management. Neither test argues for paying up here.
| Price | $279.31 |
| Market cap | $60.0B |
| P/E ratio | 26.6x |
| Return on invested capital | 12.1% |
| Gross margin | 26.5% |
| Debt to equity | 5.72x |
| Free cash flow yield | 1.5% |
| Growth rate used | 15.0% |
| Growth rate measured | 16.0% |
| Exit multiple assumed | 30.0x |
| Company | Moat | Buy price |
| ONEOK (OKE) | 74 | $96.95 |
| Kinder Morgan (KMI) | 52 | $24.34 |
| Williams Companies (WMB) | 56 | $16.29 |
| Enbridge Inc (ENB) | 48 | $20.27 |
Every number above is built on assumptions that can be changed. In Moatly you can move the growth rate, the exit multiple and the margin of safety and watch every figure recalculate, so you are testing your own view of Targa Resources rather than accepting ours.