Shell Midstream Partners (SHLX) and Targa Resources (NYSE:TRGP) Critical Review

Targa Resources (NYSE: TRGP) and Shell Midstream Partners (NYSE:SHLX) are both mid-cap oils/energy companies, but which is the superior investment? We will compare the two companies based on the strength of their valuation, profitability, dividends, analyst recommendations, earnings, institutional ownership and risk.

Analyst Ratings

This is a summary of recent ratings and recommmendations for Targa Resources and Shell Midstream Partners, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Targa Resources 0 8 8 1 2.59
Shell Midstream Partners 0 3 4 0 2.57

Targa Resources currently has a consensus target price of $54.56, suggesting a potential upside of 20.66%. Shell Midstream Partners has a consensus target price of $29.50, suggesting a potential upside of 44.61%. Given Shell Midstream Partners’ higher probable upside, analysts plainly believe Shell Midstream Partners is more favorable than Targa Resources.

Institutional & Insider Ownership

90.1% of Targa Resources shares are owned by institutional investors. Comparatively, 44.9% of Shell Midstream Partners shares are owned by institutional investors. 1.9% of Targa Resources shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a company is poised for long-term growth.

Volatility and Risk

Targa Resources has a beta of 1.98, meaning that its stock price is 98% more volatile than the S&P 500. Comparatively, Shell Midstream Partners has a beta of 1.23, meaning that its stock price is 23% more volatile than the S&P 500.

Valuation & Earnings

This table compares Targa Resources and Shell Midstream Partners’ gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Targa Resources $8.81 billion 1.12 $54.00 million ($0.43) -105.16
Shell Midstream Partners $470.10 million 9.71 $372.60 million $1.28 15.94

Shell Midstream Partners has lower revenue, but higher earnings than Targa Resources. Targa Resources is trading at a lower price-to-earnings ratio than Shell Midstream Partners, indicating that it is currently the more affordable of the two stocks.

Dividends

Targa Resources pays an annual dividend of $3.64 per share and has a dividend yield of 8.0%. Shell Midstream Partners pays an annual dividend of $1.33 per share and has a dividend yield of 6.5%. Targa Resources pays out -846.5% of its earnings in the form of a dividend. Shell Midstream Partners pays out 103.9% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Shell Midstream Partners has raised its dividend for 2 consecutive years. Targa Resources is clearly the better dividend stock, given its higher yield and lower payout ratio.

Profitability

This table compares Targa Resources and Shell Midstream Partners’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Targa Resources 0.61% 3.53% 1.67%
Shell Midstream Partners 78.08% -179.87% 26.36%

Summary

Targa Resources beats Shell Midstream Partners on 10 of the 18 factors compared between the two stocks.

Targa Resources Company Profile

Targa Resources Corp. is a midstream energy company in North America. It provides midstream services. Its segments include Gathering and Processing, and Logistics and Marketing (Downstream Business). It is engaged in the business of gathering, compressing, treating, processing and selling natural gas; storing, fractionating, treating, transporting and selling natural gas liquids (NGLs) and NGL products, including services to liquefied petroleum gas exporters; gathering, storing and terminalling crude oil, and storing, terminalling and selling refined petroleum products. The Gathering and Processing segment consists of gathering, compressing, dehydrating, treating, conditioning, processing, and marketing natural gas and gathering crude oil. The Logistics and Marketing segment includes all the activities necessary to convert mixed NGLs into NGL products and provides certain services, such as storing, fractionating, terminalling, transporting and marketing of NGLs and NGL products.

Shell Midstream Partners Company Profile

Shell Midstream Partners, L.P. owns, operates, develops, and acquires pipelines and other midstream assets in the United States. Its crude oil pipeline systems include a 350 miles of Zydeco pipeline system; a 130-miles of delta pipeline; a 174-mile offshore Gulf of Mexico corridor pipeline; and a 75-mile offshore pipeline. The company also has interests in Mars pipeline system that is approximately 163 miles that delivers production received from the Mississippi Canyon area and Green Canyon and Walker Ridge to salt dome caverns in Clovelly, Louisiana; and a 105-mile Odyssey pipeline system, which transports crude oil in the offshore eastern Gulf of Mexico to markets in Louisiana. In addition, it has interests in a 367-mile Gulf of Mexico offshore pipeline that transports crude oil to Texas and Louisiana; a 70-mile crude oil pipeline that provides transportation for various oil producers in the eastern Gulf of Mexico; and a 89-mile crude oil Endymion pipeline system that offers transportation for various oil producers in the eastern Gulf of Mexico. In addition, it holds interests in Mars pipeline system that is approximately 163 miles that delivers production received from the Mississippi Canyon area and Green Canyon and Walker Ridge to salt dome caverns in Clovelly, Louisiana. The company's refined products pipeline systems consist of 160-mile Bengal pipeline system connecting four refineries in southern Louisiana to long-haul transportation pipelines; approximately 5,500 miles of pipeline connecting refineries along the Gulf Coast to approximately 265 marketing terminals; and Explorer pipeline system, an 1,830-mile common carrier petroleum products pipeline system, which extends from the Gulf Coast to the Midwest. Shell Midstream Partners GP LLC serves as the general partner of Shell Midstream Partners, L.P. The company was founded in 2014 and is based in Houston, Texas. Shell Midstream Partners, L.P. operates as a subsidiary of Shell Pipeline Company LP.

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