Phillips 66 (PSX, Financial) recently reported a daily loss of -1.75% and a 3-month gain of 29.98%. With an Earnings Per Share (EPS) of 23.05, investors may question whether the stock is fairly valued. This article provides a comprehensive valuation analysis of Phillips 66 (PSX) to answer this question.
About Phillips 66
Phillips 66 is an independent refiner with 12 refineries that have a total crude throughput capacity of 1.9 million barrels per day. The company's midstream segment includes extensive transportation and NGL processing assets, including DCP Midstream, which holds 600 mbd of NGL fractionation and 22,000 miles of pipeline. With a current stock price of $121.22 and a market cap of $54 billion, Phillips 66's valuation compared to its GF Value will be explored in this article.
Understanding GF Value
The GF Value is an estimate of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. If a stock's price significantly exceeds the GF Value Line, it is considered overvalued and likely to offer poor future returns. Conversely, if it falls significantly below the GF Value Line, it is undervalued and likely to offer higher future returns.
According to GuruFocus Value calculation, Phillips 66 (PSX, Financial) is estimated to be fairly valued. Thus, the long-term return of its stock is likely to be close to the rate of its business growth.
Financial Strength
Investing in companies with poor financial strength can lead to a higher risk of permanent capital loss. Therefore, it's crucial to review a company's financial strength before investing. Phillips 66 has a cash-to-debt ratio of 0.15, ranking it lower than 74.95% of 1034 companies in the Oil & Gas industry. Overall, GuruFocus ranks Phillips 66's financial strength at 7 out of 10, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability and high profit margins, is generally safer. Phillips 66 has been profitable 9 out of the past 10 years. With a revenue of $154.70 billion and an Earnings Per Share (EPS) of $23.05 in the past twelve months, its operating margin is 6.28%, ranking it lower than 56.4% of 984 companies in the Oil & Gas industry. Overall, GuruFocus ranks Phillips 66's profitability at 7 out of 10, indicating fair profitability.
Growth is a critical factor in a company's valuation. Phillips 66's 3-year average annual revenue growth rate is 14.9%, ranking it higher than 59.16% of 862 companies in the Oil & Gas industry. Its 3-year average EBITDA growth rate is 39.3%, ranking it higher than 77.23% of 830 companies in the Oil & Gas industry.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) can also provide insights into its profitability. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. In the past 12 months, Phillips 66's ROIC was 13.74 while its WACC was 9.51.
Conclusion
In conclusion, Phillips 66 (PSX, Financial) is estimated to be fairly valued. The company's financial condition and profitability are fair, and its growth ranks better than 77.23% of companies in the Oil & Gas industry. To learn more about Phillips 66 stock, check out its 30-Year Financials here.
To find high-quality companies that may deliver above-average returns, check out GuruFocus High Quality Low Capex Screener.
