What: Shares of Targa Resources (NYSE:TRGP) climbed just under 25.8% in February thanks largely from the company's announcement that it had completed the acquisition of its subsidiary master limited partnership Targa Resource Partners and released its earnings.
So what: Targa didn't exactly start off the month on good footing. On Feb. 11, it gave some preliminary results for its earnings that indicated pipeline volumes were on the decline and that it plans to keep its dividend flat throughout the year. This and the continued slump in oil prices led shares down more than 25%.
The stock was able to gain that back and then some after the announcement that its planned acquisition of Targa Resources Partners went off without much resistance from shareholders despite some questions about the buyout offer. Longer term, though, this deal will help the company with better access to credit, lowered cost of capital, and, hopefully, the elimination of an incentive structure that pushed shareholder payouts before more sustainable growth.
To add to the good news last month was the company's earnings that, despite early indications, weren't as bad as some might have expected. While it did have some writedowns that resulted in net loss of ($1.26) per share, it did generate enough in cash flow to cover its dividend payments, which is something that many other pipeline companies have struggled to do as of late. Ideally, it would be generating a bit more in excess cash flow that could fund some of its development projects, but that is what the merger is for and we'll have to wait and see if it can start to do just that.
Now what: As much as this 25% rise sounds promising, keep in mind that shares of Targa sill have a long way to go before they reach precrash levels, so don't let this jump keep you away. At the same time, it may be worth holding off for a while until we see at least a few quarters of results as a combined entity before making any investment actions with Targa's stock.