Phillips 66’s valuations

Phillips 66 trades at a forward PE ratio of 9.9x, which is above its peer average of 9.3x. Valero Energy (VLO) and PBF Energy (PBF) also trade above the peer average. Valero Energy and PBF Energy trade at 10.1x and 10.3x the forward PE ratio, respectively.

Why Does Phillips 66 Trade at a Higher Valuation?

Phillips 66 (PSX) trades at a forward EV-to-EBITDA multiple of 6.8x, which is above its peer average of 5.8x. Marathon Petroleum (MPC) and Valero Energy also trade above the peer average at 6.2x and 6.1x, respectively.

Phillips 66 stock trades at a premium to the peer average on both valuation metrics.

Why does Phillips 66 stock trade at a premium?

Phillips 66 earns from its refining segment and its midstream, chemicals, and marketing segments.

In the first quarter, Phillips 66’s refining earnings were -$219 million. Combined, the midstream, chemicals, and marketing earnings were $748 million.

The refining segment earnings were $110 million in the first quarter of 2018. In the second quarter and third quarter of 2018, the refining earnings were more than a billion dollars each. In the fourth quarter of 2018, the refining earnings were more than $2 billion. In the past four quarters, the refining earnings were volatile due to refining cracks, spreads, and margin conditions.

The other segments’ combined earnings were $788 million in the first quarter of 2018. In the second, third, and fourth quarter of 2018, the segments’ earnings were $816 million, $960 million, and $1.153 billion, respectively. The segments had a relatively steady earnings stream for the company. The other segments contributed to the overall earnings during the period of lower refining earnings, which shielded Phillips 66 from refining environment volatility. Overall, the company has successfully built a diversified earnings model.

Phillips 66 plans to grow these segments through capex and acquisitions. For more on Phillips 66’s growth, read Phillips 66 Focuses on Midstream Expansion and Refining Upgrades. The company has sound financials. Phillips 66 has a decent debt and liquidity position.

With a diversified and growth-oriented earnings model and strong financials, Phillips 66 trades at a premium to the peer average.

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