Phillips 66 (PSX, Financial) recently reported a daily gain of 3.42% and a substantial 24.86% gain over the last three months. With an Earnings Per Share (EPS) of 23.05, the question arises: Is the stock fairly valued? In this article, we will delve into a detailed valuation analysis of Phillips 66. We encourage you to read on for a comprehensive understanding of the company's financial health and market position.
Company Introduction
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 comprises extensive transportation and NGL processing assets. In 2023, the Rodeo, California, facility will cease operations and be converted to produce renewable diesel. The CPChem chemical joint venture operates facilities in the United States and the Middle East, primarily producing olefins and polyolefins.
With a stock price of $122.81 and a market cap of $54.70 billion, it's crucial to compare these figures with the GF Value, an estimation of fair value. This comparison will provide a deeper understanding of the company's intrinsic value.
Understanding GF Value
The GF Value is a unique measure that presents the current intrinsic value of a stock. It's calculated based on historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value that the stock should ideally trade at.
Phillips 66 (PSX, Financial) appears to be fairly valued according to the GuruFocus Value calculation. This calculation is based on the historical multiples at which the stock has traded, past business growth, and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Given that Phillips 66 is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's important to carefully review a company's financial strength before deciding to buy shares. Looking at the cash-to-debt ratio and interest coverage can provide a good initial perspective on the company's financial strength. Phillips 66 has a cash-to-debt ratio of 0.15, which ranks worse than 74.83% of 1021 companies in the Oil & Gas industry. Based on this, GuruFocus ranks Phillips 66's financial strength as 7 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is typically less risky. Phillips 66 has been profitable 9 times over the past 10 years. Over the past twelve months, the company had a revenue of $154.70 billion and Earnings Per Share (EPS) of $23.05. Its operating margin is 6.28%, which ranks worse than 56.46% of 967 companies in the Oil & Gas industry. Overall, the profitability of Phillips 66 is ranked 7 out of 10, indicating fair profitability.
Growth is one of the most important factors in the valuation of a company. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Phillips 66 is14.9%, which ranks better than 59.41% of 850 companies in the Oil & Gas industry. The 3-year average EBITDA growth rate is 39.3%, which ranks better than 77.2% of 820 companies in the Oil & Gas industry.
ROIC vs WACC
Return on invested capital (ROIC) and weighted average cost of capital (WACC) are two ways to assess the profitability of a company. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. For the past 12 months, Phillips 66's ROIC is 13.74, and its WACC is 9.29.
Conclusion
In conclusion, Phillips 66 (PSX, Financial) shows every sign of being fairly valued. The company's financial condition is fair, and its profitability is fair. Its growth ranks better than 77.2% of 820 companies in the Oil & Gas industry. To learn more about Phillips 66 stock, you can check out its 30-Year Financials here.
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