Stock of the Day

September 21, 2020

Phillips 66 (PSX)

$289.34
-$7.96 (-2.7%)
Market Cap: $118.62B

About Phillips 66

Phillips 66 operates as an energy manufacturing and logistics company in the United States, the United Kingdom, Germany, and internationally. It operates through four segments: Midstream, Chemicals, Refining, and Marketing and Specialties (M&S). The Midstream segment transports crude oil and other feedstocks; delivers refined petroleum products to market; provides terminaling and storage services for crude oil and refined petroleum products; transports, stores, fractionates, exports, and markets natural gas liquids; provides other fee-based processing services; and gathers, processes, transports, and markets natural gas. The Chemicals segment produces and markets ethylene and other olefin products; aromatics and styrenics products, such as benzene, cyclohexane, styrene, and polystyrene; and various specialty chemical products, including organosulfur chemicals, solvents, catalysts, and chemicals used in drilling and mining. The Refining segment refines crude oil and other feedstocks into petroleum products, such as gasolines, distillates, aviation, and renewable. The M&S segment purchases for resale and markets refined petroleum products, including gasolines, distillates, and aviation fuels. This segment also manufactures and markets specialty products, such as base oils and lubricants. Phillips 66 was founded in 1875 and is headquartered in Houston, Texas.

Phillips 66 Bull Case

Here are some ways that investors could benefit from investing in Phillips 66:

  • Phillips 66 shares reached a new 52-week high of $282.64, with the current stock price trading at $281.29, reflecting a strong upward momentum and a seven consecutive session advance that signals robust investor confidence in the company's recent performance.
  • The company reported third-quarter earnings of $9.41 per share, significantly exceeding the analyst consensus estimate of $7.50, which demonstrates a substantial beat in profitability and suggests that the company's operational efficiency and revenue generation are outperforming market expectations.
  • Refining margins have improved dramatically, with indicative margins jumping to approximately $42 per barrel from $24 per barrel in the prior quarter, indicating that Phillips 66 is benefiting from tight fuel markets and record U.S. crack spreads that enhance downstream profits.
  • Phillips 66 has authorized a $10.00 billion stock repurchase program, allowing the company to buy back up to 11.8% of its shares, which is a strong signal that management believes the stock is undervalued and is committed to returning capital to shareholders.
  • The stock has a low beta of 0.71, meaning it is less volatile than the overall market, which can provide a more stable investment profile for investors seeking exposure to the energy sector with reduced risk of sharp price swings.

Phillips 66 Bear Case

Investors should be bearish about investing in Phillips 66 for these reasons:

  • Mizuho Securities downgraded Phillips 66 to a "neutral" rating from "outperform," stating that the recent rise in refining stocks has mostly priced in higher earnings, leaving the stock with only about 4% average upside to its raised price targets, which suggests limited room for further growth.
  • Insiders have sold 112,886 shares of company stock worth $25,878,894 over the last ninety days, including significant sales by executives such as Richard Harbison and Brian Mandell, which may indicate that company leadership is taking advantage of the recent stock price rally to reduce their personal holdings.
  • The company's P/E ratio of 16.03 is higher than the consensus price target of $252.00, suggesting that the current stock price of $281.29 may be overvalued relative to the average analyst expectation, which could lead to a potential correction if earnings do not continue to exceed expectations.
  • Short interest has increased month-to-month, with shares shorted rising to 6,791,826 in the most recent period, indicating that some investors are betting against the stock's future performance, which could create downward pressure on the share price if the short position is not covered.
  • The company's debt-to-equity ratio of 0.57, while manageable, indicates a significant level of leverage, which could become a burden if interest rates rise or if the company's cash flows are impacted by a downturn in the energy sector, potentially limiting its financial flexibility.
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