Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model. NEW YORK ( TheStreet) -- Targa Resources (NYSE: TRGP) has been upgraded by TheStreet Ratings from sell to hold. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk, weak operating cash flow and poor profit margins.
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- TARGA RESOURCES CORP has improved earnings per share by 35.0% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, TARGA RESOURCES CORP increased its bottom line by earning $0.92 versus $0.73 in the prior year. This year, the market expects an improvement in earnings ($1.11 versus $0.92).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income increased by 31.8% when compared to the same quarter one year prior, rising from $8.50 million to $11.20 million.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. In comparison to other companies in the Oil, Gas & Consumable Fuels industry and the overall market on the basis of return on equity, TARGA RESOURCES CORP has underperformed in comparison with the industry average, but has greatly exceeded that of the S&P 500.
- Net operating cash flow has decreased to $138.00 million or 35.72% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- The debt-to-equity ratio is very high at 17.18 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, TRGP maintains a poor quick ratio of 0.86, which illustrates the inability to avoid short-term cash problems.
-- Written by a member of TheStreet Ratings Staff