Phillips 66 (PSX, Financial) experienced a daily loss of 1.38%, yet it has shown a significant 3-month gain of 16.96%. With an Earnings Per Share (EPS) of 23.05, it raises the question: is the stock fairly valued? This article will delve into an in-depth valuation analysis of Phillips 66 (PSX).
Company Overview
Phillips 66 is an independent refiner with 12 refineries and a total crude throughput capacity of 1.9 million barrels per day. With its midstream segment comprising extensive transportation and NGL processing assets, Phillips 66 has made its mark in the Oil & Gas industry. The company's current stock price stands at $111.38, with a market cap of $49.60 billion. The GF Value, an estimation of the stock's fair value, is $109.94, indicating that the stock is fairly valued.
Understanding the GF Value
The GF Value is a proprietary measure that represents the intrinsic value of a stock. It is calculated based on historical multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. If the stock price is significantly above the GF Value Line, it indicates overvaluation and potential poor future returns. Conversely, if it is significantly below, it suggests undervaluation and potentially high future returns.
Phillips 66 (PSX, Financial) appears to be fairly valued according to the GF Value. This suggests that 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 high risk of permanent capital loss. Therefore, it is crucial to review a company's financial strength before purchasing shares. Phillips 66 has a cash-to-debt ratio of 0.15, ranking worse than 76.03% of 1018 companies in the Oil & Gas industry. However, the company's overall financial strength is 7 out of 10, indicating fair financial health.
Profitability and Growth
Investing in profitable companies carries less risk, especially those that have demonstrated consistent profitability over the long term. Phillips 66 has been profitable for 9 out of the past 10 years, with revenues of $154.70 billion and Earnings Per Share (EPS) of $23.05 in the past 12 months. However, its operating margin of 6.28% is worse than 56.3% of 968 companies in the Oil & Gas industry.
Growth is a vital factor in a company's valuation. Phillips 66 has an average annual revenue growth of 14.9%, ranking better than 59.55% of 853 companies in the Oil & Gas industry. The 3-year average EBITDA growth is 39.3%, ranking better than 77.12% of 826 companies in the industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate profitability. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Phillips 66's ROIC was 13.74, while its WACC came in at 8.92.
Conclusion
In summary, Phillips 66 (PSX, Financial) appears to be fairly valued. The company's financial condition is fair, and its profitability is consistent. Its growth ranks better than 77.12% of 826 companies in the Oil & Gas industry. For more details on Phillips 66 stock, check out its 30-Year Financials here.
To discover high-quality companies that may deliver above-average returns, check out the GuruFocus High Quality Low Capex Screener.
