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Why Phillips 66’s Diversified Growth Model Matters

PART:
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Part 7
Why Phillips 66’s Diversified Growth Model Matters PART 7 OF 12

Where Phillips 66’s Valuations Stand beside Peers

Phillips 66’s valuations compared with peers

Phillips 66 (PSX) is now trading at a forward PE (price-to-earnings) ratio of 16.0x, which is above the peer average of 15.7x. Peers PBF Energy (PBF), HollyFrontier (HFC), and Marathon Petroleum (MPC) are also trading above the average at 16.0x, 17.0x, and 15.8x, respectively.

Phillips 66 (PSX) is trading at a forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) ratio of 8.7x—above the peer average of 7.1x. Most of its peers are trading above the average forward EV-to-EBITDA, except for Valero Energy (VLO), PBF Energy (PBF), and CVR Refining (CVRR).

Where Phillips 66’s Valuations Stand beside Peers

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VLO is trading below the peer average EV-to-EBITDA ratio at 6.1x, but Andeavor (ANDV) and Marathon Petroleum (MPC) are trading above the average at 7.7x and 7.9x, respectively.

Notably, Valero (VLO) has a satisfactory leverage and cash flow position but has been bearing the burden of high compliance costs. The purchase of RINs (renewable identification numbers) has been denting the company’s quarter-over-quarter refining earnings.

Andeavor has shown a mixed trend in terms of valuations. A few months back, it was trading at a premium to both peer averages, apparently due to the Western Refining acquisition. But the decline in its stock price after its 2Q17 results led to a drop in ANDV’s valuations.

MPC is now trading at valuations above the peer averages likely because it’s in the process of restructuring its organization to unlock value.

Why the premium for PSX?

Phillips 66 is trading at a premium over the peer averages likely due to its earnings model, which is growth-oriented and well-diversified. PSX focuses on improving steady income from its midstream and marketing segments along with growing returns from its refining segment. And if the refining environment improves, this will likely serve as a cherry on top of the cake, leading to higher earnings.

In the next part, we’ll evaluate changes in short interest in PSX.

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