How are analysts rating Phillips 66?
In the previous part of this series, we looked at the stock performance of Phillips 66 (PSX). In this part, we’ll see how analysts are rating the company.
About 41% of the surveyed analysts who cover Phillips 66 (PSX) rate the company a “buy.” Another 53% rate it a “hold.” The highest 12-month price target for PSX stands at $105, indicating a rise of 32% from current levels. However, 6% of analysts rate Phillips 66 a “sell.” PSX trades at $79, its lowest price target. The average 12-month price target stands at $90, indicating a 14% rise from current levels.
Phillips 66’s peers PBF Energy (PBF), HollyFrontier (HFC), and Western Refining (WNR) have been rated a “buy” by 67%, 35%, and 43% of analysts, respectively. For exposure to stocks with long-term growth potential, you can consider the iShares Core S&P Total US Stock Market ETF (ITOT). The ETF has ~7% exposure to energy sector stocks.
Phillips 66’s capex plans: Focus on midstream
Phillips 66 plans to lower its dependence on its refining segment and increase earnings from its midstream segment. Phillips 66’s capital expenditure (or capex) stood at $750 million in 1Q16. For 2016, PSX plans to incur capex of $3.9 billion. Most of it will go toward growth projects in the midstream segment.
To strengthen the midstream segment, Phillips 66 (PSX) will sell a 25% interest in its Sweeny Fractionator One and the associated Clemens Caverns natural gas liquids storage facility to Phillips 66 Partners (PSXP) for $236 million. PSXP is PSX’s midstream master limited partnership. PSXP also recently began operations at the Bayou Bridge Pipeline’s first segment.
To further enhance its midstream capabilities, Phillips 66 is participating in the development of the Dakota Access pipeline and the Energy Transfer crude oil pipeline at 470,000 barrels per day. Mechanical completion of Energy Transfer is expected in 4Q16.
PSX has also undertaken projects to augment the storage and throughput capabilities of the Beaumont Terminal. The LPG (liquefied petroleum gas) export terminal construction is progressing on schedule, with 80% completed and an expected startup in the second half of 2016. This will mark the creation of a fully integrated site at the Sweeny complex with refining, petrochemical, NGL (natural gas liquids), transportation, fractionation, and storage units.
Phillips 66’s growth plans and weaker refining earnings have led to a steep fall in PSX’s cash reserves. This has led to a rise in its net debt levels. However, the situation might improve if refining margins and earnings rise. This could be why most of Phillips 66 analysts have given the company a “hold” rating.
Next, let’s see how Phillips 66’s refining margin was doing in 1Q16.