Today we're going to take a closer look at large-cap Energy company Phillips 66, whose shares are currently trading at $124.62. We've been asking ourselves whether the company is under or over valued at today's prices... let's perform a brief value analysis to find out!
Phillips 66 Is Fairly Valued:
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 8.53 and an average price to book (P/B) ratio of 1.78. In contrast, Phillips 66 has a trailing 12 month P/E ratio of 7.5 and a P/B ratio of 1.78.
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 -1.1. 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.
The Business Has Weak Operating Margins:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $111,461 | $107,293 | $64,129 | $111,476 | $169,990 | $149,408 |
| Revenue Growth | n/a | -3.74% | -40.23% | 73.83% | 52.49% | -12.11% |
| Gross Margins | 12% | 11% | 10% | 8% | 12% | 13% |
| Operating Margins | 7% | 4% | -6% | 1% | 6% | 5% |
| Net Margins | 7% | 4% | 0% | 2% | 9% | 7% |
| Net Income (MM) | $7,445 | $4,178 | $261 | $1,740 | $14,639 | $10,255 |
| Net Interest Expense (MM) | $504 | $458 | $499 | $581 | $2,737 | $872 |
| Depreciation & Amort. (MM) | $1,356 | $1,341 | $1,395 | $1,605 | $1,629 | $1,961 |
| Earnings Per Share | $11.8 | $6.77 | -$9.06 | $2.97 | $23.27 | $16.900000000000002 |
| EPS Growth | n/a | -42.63% | -233.83% | 132.78% | 683.5% | -27.37% |
| Diluted Shares (MM) | 474 | 454 | 440 | 440 | 474 | 426 |
| Free Cash Flow (MM) | $7,573 | $4,808 | $2,111 | $6,017 | $10,813 | $9,589 |
| Current Ratio | 1.48 | 1.24 | 1.39 | 1.15 | 1.38 | 1.29 |
| Long Term Debt (MM) | $17,333 | $17,792 | $14,906 | $12,959 | $16,661 | $18,531 |
| Net Debt / EBITDA | 2.46 | 3.26 | -5.55 | 4.37 | 0.98 | 1.7 |
Phillips 66 has growing revenues and no capital expenditures, positive EPS growth, and healthy leverage. However, the firm suffers from slimmer gross margins than its peers and weak operating margins with a negative growth trend. Finally, we note that Phillips 66 has irregular cash flows.
