Phillips 66’s 3Q15 EPS estimates
Phillips 66’s (PSX) EPS (earnings per share) estimate for 3Q15, which showed an increase compared to the previous quarter, is ~$2.2—approximately 22.4% higher than the previous quarter’s EPS and ~11% higher than the corresponding quarter’s EPS in 2014.
As the graph above shows, PSX’s EPS estimate for 3Q15 is the highest since 2013. The reason for this is the same as we saw previously in this series, in our discussion of PSX’s revenue estimates for 3Q15. Th lower cost of crude oil in the near-term should lead to higher refining margins, which in turn should lead to higher earnings.
Now let’s compare PSX’s expectations to its peers in the industry. Marathon Petroleum’s (MPC) EPS in 3Q15, for example, is expected to come in at ~$1.82, compared to $1.51 in 2Q15—an approximate 21% increase. Valero Energy (VLO) is expected to report EPS of $2.66, which is the same as it saw the previous quarter, whereas Tesoro (TSO) is expected to report EPS of $6.01 in 3Q15, an increase of ~30%, compared to its 2Q15 EPS.
All the above companies make up ~8% of the Vanguard Energy ETF (VDE).
Investors ready for 3Q15
While the impact of lower crude oil prices shouldn’t be too direct or heavy on downstream companies, the prices of refined products like gasoline and diesel, which are benchmarked to Brent oil prices, could slide. Notably, Brent fell by ~22% in the third quarter, and this decline in the prices of refined products could lower PSX’s realized refined product prices and further hurt its downstream revenues.
The company believes, however, that its chemical and midstream businesses are less volatile and have higher growth compared to its refining business. Investors have appeared to agree with this viewpoint—which explains the higher revenue and EPS estimates.
The company thus has plans to shift investments to these less volatile sectors. In the next part of this series, we’ll look at these sectors. But keep in mind that PSX has had positive returns since the beginning of this year, compared to the broader energy sector, which further explains investor optimism for the company’s 3Q15 earnings release on October 30. You can read more about Phillips 66’s year-to-date performance in Part 1.
Continue to the next part of this series for a discussion of Phillips 66’s 2016 capital budget announcement on October 12, 2015.