Phillips 66 Stock, SPY, and USGC WTI 3-2-1 Crack Returns


Jul. 11 2019, Published 7:54 a.m. ET

Phillips 66’s stock performance

We’ll discuss Phillips 66 (PSX) stock before its second-quarter results. The company is scheduled to report its second-quarter results on July 26. We’ll also forecast the stock’s price range based on its current implied volatility. We’ll discuss Phillips 66’s dividend yield compared to its peers.

First, we’ll discuss Phillips 66’s stock performance since April 1—the beginning of the second quarter. Phillips 66 stock has increased during the stated period. Since April 1, the US Gulf Coast WTI 3-2-1 and the SPDR S&P 500 ETF (SPY) have risen.

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The refining environment put up mixed cues in the second quarter. While industry cracks rose, oil spreads narrowed YoY (year-over-year) in the second quarter. The USGC WTI 3-2-1 crack is a vital indicator for Phillips 66, which has significant refining capacities in the US Gulf Coast. The USGC WTI 3-2-1 has risen 9% YoY to $20 per barrel in the second quarter.

However, the Canadian differential, the WTI-Western Canadian Select spread, fell 30.4% YoY to $12.4 per barrel in the second quarter due to supply constraints. The WTI Cushing-WTI Midland spread fell 71.2% YoY to $2.3 per barrel in the quarter. The spread fell due to new pipelines, which started sooner than expected in the region. The new pipelines reduced infrastructure issues and moved crude oil out of the Permian region.

SPY has risen 5.2% since April 1. The expectation of an interest rate cut supported the markets. Let’s test the correlation between Phillips 66 stock and SPY. A correlation coefficient between zero and one shows a positive correlation, while zero states no correlation. A correlation coefficient between negative one and zero shows an inverse correlation. Phillips 66’s (PSX) correlation coefficient versus SPY is 0.61. The positive correlation between Phillips 66 and SPY shows that the stock moves in line with SPY to a certain extent. The coefficient value shows that changes in SPY can explain ~61% of the changes in Phillips 66’s stock price.

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Besides refining conditions and equity markets, Phillips 66 stock was impacted by its first-quarter earnings. Phillips 66 posted better-than-expected first-quarter earnings in April. However, the earnings were weak. Phillips 66’s adjusted net earnings, attributable to its shareholders, fell from $0.6 billion in the first quarter of 2018 to $0.3 billion in the first quarter due to lower adjusted pre-tax earnings. Phillips 66’s adjusted pre-tax earnings fell due to a year-over-year fall in the refining, chemicals, and marketing and specialties earnings. A rise in midstream earnings partially offset the fall in profits in other segments. To learn more, read Phillips 66 Posts Weak First-Quarter Earnings.

Overall, Phillips 66 has risen 2.7% since April 1. Valero Energy (VLO) and Marathon Petroleum (MPC) have fallen 3.1% and 8.7%, respectively. HollyFrontier (HFC) and PBF Energy (PBF) have fallen 5.9% and 6.3%, respectively, during the same period.

Phillips 66’s stock forecast until earnings

Now, we’ll discuss Phillips 66’s stock price forecast based on its current implied volatility. Phillips 66 is expected to post its second-quarter earnings on July 26.

Since June 7, the implied volatility in Phillips 66 has declined by 0.8 percentage points to the current level of 23.3%. Phillips 66’s stock price has risen 14.7% during the same period.

Phillips 66’s stock price range is estimated using it’s implied volatility of 23.3%. The forecast assumes a normal distribution of prices and one standard deviation, which means a probability of 68.2%. Phillips 66’s stock price could close between $102.6 per share and $92.8 per share in the next 17 days ending on July 26.

The implied volatility in Valero Energy and HollyFrontier has fallen by 4.1 percentage points and 2.5 percentage points, respectively, since June 7 to 27.8% and 34.0%. The implied volatility in PBF Energy has fallen by 4.1 percentage points since June 7 to the current level of 41.6%.

Valero Energy and HollyFrontier stocks have risen 10.0% and 15.6%, respectively, since June 7. PBF Energy stock has risen 17.6% during the same period. Since June 7, the implied volatility in these stocks has declined. However, the stock prices have increased, which shows an inverse relationship.

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The implied volatility in the SPDR Dow Jones Industrial Average ETF (DIA) and the SPDR S&P 500 ETF’s (SPY), which closely resemble the Dow Jones Industrial Average and the S&P 500 Index, respectively, have fallen. In the past month, the implied volatility has fallen by 2.1 percentage points in DIA and SPY. Currently, the implied volatility in DIA and SPY is 11.9% and 11.7%, respectively. DIA and SPY’s values have risen 2.9% and 3.3%, respectively, during the same period.

Phillips 66’s dividend yield

In the second quarter, Phillips 66 paid a dividend of $0.9 per share on June 3. The dividend was announced on May 8. Phillips 66’s second-quarter dividend payment was 28.6% higher than the dividends its paid in the second quarter of 2017.

Currently, Phillips 66’s dividend yield is 3.7%. Phillips 66 has the fourth-highest dividend yield among its US peers. Valero Energy, PBF Energy, and Marathon Petroleum have higher dividend yields at 4.4%, 4.2%, and 3.9%, respectively. Delek US Holdings (DK) and HollyFrontier have relatively lower yields at 2.8% and 2.9%, respectively.

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Phillips 66 has regularly provided returns to shareholders through dividends and share repurchases. In the first quarter, Phillips 66 incurred ~$364 million and ~$344 million towards dividends and share repurchases, respectively. Since May 2012, Phillips 66’s dividends have risen at a 25% compound annual growth rate. The company has reduced 31% of its initial outstanding shares through repurchases.

Phillips 66 expects the growth in shareholders’ returns to continue in 2019. In Phillips 66’s first-quarter earnings release, its chairman and CEO, Greg Garland, said, “We have a strong portfolio of growth projects and are focused on executing our capital program. Disciplined capital allocation is fundamental to our strategy, and we will invest in opportunities with attractive returns, while returning capital to shareholders through dividends and share buybacks.”

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Short interest in Phillips 66

The short interest in Phillips 66 has fallen by 0.41 percentage points since April 1 to the current level of 1.12%. Usually, a fall in the short interest could indicate a decrease in the bearish sentiment for a stock. During the same period, Phillips 66’s stock price rose 2.7%.

The short interest in Phillips 66 has fallen since the beginning of the second quarter. The fall could be due to Phillips 66’s better-than-expected first-quarter earnings. The company’s adjusted EPS was $0.40 in the first quarter, which beat analysts’ consensus estimate of $0.34.

In the second quarter, improving refining cracks supported Phillips 66 stock. Like the USGC WTI 3-2-1, the industry crack has risen 9.1% YoY to $19.7 per barrel in the second quarter. The increase could boost Phillips 66’s refining margin in USGC, which is its main operating region.

However, the positive sentiments built by earnings and crack were partly offset by the expectation of lower second-quarter profits. Phillips 66’s EPS is expected to fall 10% YoY to $2.52 in the second quarter due to weaker oil spreads.

In contrast to the trend in Phillips 66, the short interest in Marathon Petroleum and PBF Energy has risen by 0.48 and 0.19 percentage points since April 1 to the current level of 1.87% and 4.71%, respectively. Delek US Holdings’ short interest has increased by 0.56 percentage points to 7.57%. Since April 1, Marathon Petroleum and PBF Energy stocks have fallen 8.7% and 6.3%, while Delek US Holdings stock has risen 8.8%.


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