PSX

Quick Update for PSX 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.

Phillips 66 Is Reasonably 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 7.6 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 -1.07. 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.

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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