Phillips 66 shares fell by -1.9% during the day's morning session, and are now trading at a price of $129.97. Is it time to buy the dip? To better answer that question, it's essential to check if the market is valuing the company's shares fairly in terms of its earnings and equity levels.
The Market Is Undervaluing Phillips 66:
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 13.84 and an average price to book (P/B) ratio of 2.05. In contrast, Phillips 66 has a trailing 12 month P/E ratio of 11.1 and a P/B ratio of 1.85.
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 -3.43. 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.
Generally Positive Cash Flows but an Average Current Ratio:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $111,461 | $107,293 | $64,129 | $111,476 | $169,990 | $147,399 |
| Operating Margins | 7% | 4% | -8% | 1% | 6% | 5% |
| Net Margins | 5% | 3% | -6% | 1% | 6% | 5% |
| Net Income (M) | $5,595 | $3,076 | -$3,975 | $1,317 | $11,024 | $7,015 |
| Net Interest Expense (M) | $504 | $458 | $499 | $581 | $619 | $897 |
| Depreciation & Amort. (M) | $1,356 | $1,341 | $1,395 | $1,605 | $1,629 | $1,977 |
| Diluted Shares (M) | 474 | 454 | 440 | 440 | 474 | 453 |
| Earnings Per Share | $11.8 | $6.77 | -$9.06 | $2.97 | $23.27 | $15.48 |
| EPS Growth | n/a | -42.63% | -233.83% | 132.78% | 683.5% | -33.48% |
| Avg. Price | $85.79 | $83.37 | $59.15 | $71.26 | $83.67 | $129.97 |
| P/E Ratio | 7.23 | 12.26 | -6.53 | 23.99 | 3.58 | 8.35 |
| Free Cash Flow (M) | $4,934 | $935 | -$809 | $4,157 | $8,619 | $4,611 |
| CAPEX (M) | $2,639 | $3,873 | $2,920 | $1,860 | $2,194 | $2,418 |
| EV / EBITDA | 5.81 | 8.71 | -11.03 | 14.52 | 3.77 | 8.49 |
| Total Debt (M) | $11,160 | $11,763 | $15,893 | $14,448 | $17,190 | $19,359 |
| Net Debt / EBITDA | 0.93 | 1.84 | -3.75 | 3.87 | 0.87 | 1.78 |
| Current Ratio | 1.48 | 1.24 | 1.39 | 1.15 | 1.38 | 1.26 |
Phillips 66 has generally positive cash flows, positive EPS growth, and healthy leverage levels. However, the firm has weak operating margins with a stable trend. Finally, we note that Phillips 66 has growing revenues and decreasing reinvestment in the business and just enough current assets to cover current liabilities, as shown by its current ratio of 1.26.
