Growth and income investors typically have to sacrifice a little bit of the former to get more of the latter, and vice versa. That doesn't appear to be the case with Targa Resources Partners LP (NGLS).
Targa is a Master Limited Partnership (MLP) that operates in the natural gas liquids (NGL) industry. The partnership pays a distribution that yields a whopping 6.5%.
Moreover, analysts are projecting stellar 52% earnings growth for NGLS in 2011 and 13% in 2012. Consensus estimates have been rising over the last several weeks after the company posted strong first quarter results.
First Quarter Results
On May 5, Targa reported first quarter earnings per limited partner unit of 37 cents, crushing the Zacks Consensus Estimate of 24 cents. It was a 164% increase over the same quarter in 2010.
Revenues rose 8% to $1.615 billion in the quarter as performance was strong across all operating segments. Operating income jumped 30% as gross profit as a percentage of revenues expanded from 12.5% to 13.2%.
Meanwhile, adjusted EBITDA, a good measure of cash flow, was up 10% to $107.4 million.
Estimates Moving Higher
Following strong first quarter results, analysts revised their estimates significantly higher for both 2011 and 2012, sending the stock to a Zacks #1 Rank (Strong Buy) stock.
Based on consensus estimates, analysts are projecting big growth from this MLP over the next two years. The 2011 Zacks Consensus Estimate is $1.61, corresponding with 52% EPS growth.
The 2012 consensus estimate is currently $1.81, representing 13% growth.
As an MLP, Targa pays out a majority of its income to unitholders through distributions. Targa has been steadily raising its distribution since it was formed in 2007:
It currently yields a juicy 6.5%.
NGLS has held up relatively well during the recent market pullback. Units trade at 20.5x forward earnings, in-line with the industry average.
Its price to book ratio is also in-line with the industry at 2.2.
It isn't often that growth and income investors are offered both strong growth and strong income from the same investment. With a 6.5% yield and stellar earnings growth projections, Targa Resources Partners looks very appealing.
Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.