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Phillips 66 Stock Rose Due to Higher Q2 Earnings

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  • On July 26, Phillips 66 stock rose 0.7%—its earnings release day.
  • Phillips 66 stock was boosted by an 8% YoY rise in its earnings.
  • The better-than-expected EPS supported Phillips 66 stock.

On July 26, Phillips 66 (PSX) stock performed in line with its peers and the equity market. The SPDR S&P 500 ETF (SPY), which represents the S&P 500 Index, rose 0.7%. To learn more, read Trump Calls US Economy’ Best Ever’—Q2 GDP Surprises. The US Gulf Coast WTI 3-2-1, the benchmark crack, rose 2.8% on July 26. The crack is vital for Phillips 66, which refined 37% of its throughput in the region.

Phillips 66’s peers HollyFrontier and Valero Energy (VLO) rose 0.6% and 1.0%, respectively, on July 26. Valero Energy stock fell on July 25 due to lower second-quarter earnings. Delek US Holdings (DK) and Marathon Petroleum (MPC) rose 2.5% and 0.6%, respectively, on the same day. Analysts expect Delek US Holdings and Marathon Petroleum’s EPS to fall 40% and 38% YoY in the second quarter. However, analysts expect HollyFrontier’s EPS to rise 13% YoY.

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Growth updates support Phillips 66 stock

Notably, Phillips 66’s adjusted capex was at $631 million in the second quarter—$359 million was in the Midstream segment.

In the Midstream segment, Phillips 66 entered into two joint ventures to construct the Liberty pipeline and Red Oak pipeline. Phillips 66 will hold a 50% stake in both of the ventures. The Liberty pipeline will connect the Bakken and Rockies region to Cushing. The Red Oak pipeline will connect Cushing and the Permian to the US Gulf Coast. Both of the pipelines will likely start in the first quarter of 2021. The Gray Oak pipeline will connect the Permian and Eagle Ford to destinations like Corpus Christi and Sweeny. The Gray Oak pipeline will likely be operational by the fourth quarter.

Phillips 66 plans to expand its fractionating capacity to 550,000 barrels per day at Sweeny Hub by the second quarter of 2021. The Sweeny Hub is located at an integrated NGL (natural gas liquids) facility on the US Gulf Coast. Sweeny Hub provides vital access to export markets for fuels, petrochemicals, and liquefied petroleum gas. Phillips 66 plans to expand its storage capacity to 15 million barrels by the fourth quarter of 2020 at Clemens Caverns. The company is also expanding its storage capacity at the Beaumont Terminal to 16.8 million barrels by the first quarter of 2020.

In the refining sector, Phillips 66’s project of modernizing fluid catalytic cracking at the Sweeny Refinery should be completed by the second quarter of 2020. Also, the company’s 25,000-barrel-per-day isomerization unit at the Lake Charles Refinery will ramp-up in the third quarter.

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Phillips 66’s stock forecast for the next seven days

Phillips 66 stock reacted positively to its earnings release. Now, we’ll estimate Phillips 66’s stock price range for the period ending on August 2. The stock price range is based on the company’s implied volatility.

We considered Phillips 66’s implied volatility of 19.9% and assumed a normal distribution of prices and a standard deviation of one. Phillips 66’s stock price could close between $105.1 and $99.5 per share in the week ending August 2.

Higher earnings support the stock

A 3% YoY rise in the adjusted earnings supported Phillips 66 stock. The growth was due to higher midstream and marketing earnings. The growth was partly offset by lower chemicals and refining earnings.

Phillips 66’s adjusted refining earnings fell 17% YoY to $983 million in the second quarter. Lower refining margins and throughputs impacted the earnings. Phillips 66’s refining margin fell by $0.9 per barrel YoY to $11.4 per barrel in the second quarter. Phillips 66’s refining capacity utilization fell from 100% in the second quarter of 2018 to 97% in the second quarter. However, the Refining segment contributed about 54% to the company’s total earnings in the second quarter.

The Midstream and Marketing segments contributed $423 million or 23% and $353 million or 19% to the total earnings, respectively. The midstream earnings rose 78% YoY due to higher transportation, NGL, and DCP Midstream earnings. The marketing earnings rose 39% YoY in the second quarter due to a wider fuel marketing margin.

However, the chemical earnings fell 15% YoY to $275 million. Overall, the chemical earnings contributed 15% to the company’s total earnings. Phillips 66’s corporate and other expenses were $205 million. The expenses contributed -11% to the company’s earnings in the second quarter.

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