PSX

Fundamental Facts for Phillips 66 Investors

We've been asking ourselves recently if the market has placed a fair valuation on Phillips 66. Let's dive into some of the fundamental values of this large-cap Energy company to determine if there might be an opportunity here for value-minded investors.

A Very Low P/E Ratio but Trades Above Its Graham Number:

Phillips 66 operates as an energy manufacturing and logistics company in the United States, the United Kingdom, Germany, and internationally. The company belongs to the Energy sector, which has an average price to earnings (P/E) ratio of 7.54 and an average price to book (P/B) ratio of 1.68. In contrast, Phillips 66 has a trailing 12 month P/E ratio of 4.9 and a P/B ratio of 1.62.

When we divide Phillips 66's P/E ratio by its expected EPS growth rate of the next five years, we obtain its PEG ratio of -0.85. Since it's negative, the company has negative growth expectations, and most investors will probably avoid the stock unless it has an exceptionally low P/E and P/B ratio.

Exceptional EPS Growth Obtained Primarily Through Share Buybacks:

2017-02-17 2018-02-23 2019-02-22 2020-02-21 2021-02-24 2022-02-18
Revenue (MM) $85,703 $104,101 $114,156 $107,293 $64,129 $111,476
Gross Margins 27.0% 24.0% 14.0% 11.0% 10.0% 8.0%
Operating Margins 3% 3% 7% 3% -2% 0%
Net Margins 2.0% 5.0% 5.0% 3.0% -6.0% 1.0%
Net Income (MM) $1,555 $5,106 $5,595 $3,076 -$3,975 $1,317
Net Interest Expense (MM) -$338 -$438 -$504 -$458 -$499 -$581
Depreciation & Amort. (MM) -$1,168 -$1,318 -$1,356 -$1,341 -$1,395 -$1,605
Earnings Per Share $2.93 $9.85 $11.8 $6.78 -$9.04 $2.98
EPS Growth n/a 236.18% 19.8% -42.54% -233.33% 132.96%
Diluted Shares (MM) 530 519 474 454 440 442
Free Cash Flow (MM) $6,083 $5,404 $10,200 $8,595 $4,980 $7,850
Capital Expenditures (MM) -$3,120 -$1,756 -$2,627 -$3,787 -$2,869 -$1,833
Net Current Assets (MM) -$15,248 -$12,553 -$13,940 -$17,156 -$19,922 -$19,260
Long Term Debt (MM) $9,588 $10,069 $11,093 $11,216 $14,906 $12,959
Net Debt / EBITDA 2.06 1.45 0.88 2.22 -78.24 5.52

Phillips 66 has slimmer gross margins than its peers, weak operating margins with a negative growth trend, and exceptional EPS growth obtained primarily through share buybacks. Phillips 66 has weak revenue growth and a flat capital expenditure trend, irregular cash flows, and just enough current assets to cover current liabilities. In addition, we note significant leverage.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.

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