Phillips 66 (PSX, Financial) recently experienced a day's loss of -4.45%, although it has seen a 3-month gain of 22.01%. The company's Earnings Per Share (EPS) stands at 23.05. These figures prompt a critical question: Is Phillips 66 (PSX) fairly valued? In this article, we will conduct a thorough valuation analysis of Phillips 66 (PSX) to answer this question. So, let's dive in.
Company Introduction
Phillips 66 is an independent refiner with 12 refineries possessing a total crude throughput capacity of 1.9 million barrels per day. By 2023, the Rodeo, California, facility will convert to produce renewable diesel. The midstream segment includes transportation and NGL processing assets, including DCP Midstream, which boasts 600 mbd of NGL fractionation and 22,000 miles of pipeline. Its CPChem chemical joint venture operates facilities in the United States and the Middle East, primarily producing olefins and polyolefins.
The company's current stock price is $110.49, with a market cap of $49.20 billion. But how does this compare to the company's fair value?
Understanding GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line gives an overview of the fair value that the stock should be traded at. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
According to the GuruFocus Value calculation, Phillips 66 (PSX, Financial) appears to be fairly valued. This means the long-term return of its stock is likely to be close to the rate of its business growth.
Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. Phillips 66 has a cash-to-debt ratio of 0.15, which ranks worse than 74.95% of 1026 companies in the Oil & Gas industry. Based on this, GuruFocus ranks Phillips 66's financial strength as 7 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Profitable companies, especially those that have demonstrated consistent profitability over the long term, pose less risk to investors. Phillips 66 has been profitable 9 out of the past 10 years. Over the past twelve months, the company had a revenue of $154.70 billion and an Earnings Per Share (EPS) of $23.05. Its operating margin is 6.28%, which ranks worse than 56.38% of 979 companies in the Oil & Gas industry.
One of the most important factors in the valuation of a company is growth. The average annual revenue growth of Phillips 66 is 14.9%, which ranks better than 59.07% of 860 companies in the Oil & Gas industry. The 3-year average EBITDA growth is 39.3%, which ranks better than 77.24% of 826 companies in the Oil & Gas industry.
ROIC vs WACC
Another way to look at the profitability of a company is to compare its return on invested capital (ROIC) and the weighted average cost of capital (WACC). For the past 12 months, Phillips 66's ROIC is 13.74, and its cost of capital is 9.55.
Conclusion
Overall, Phillips 66 (PSX, Financial) stock shows every sign of being fairly valued. The company's financial condition is fair, and its profitability is fair. Its growth ranks better than 77.24% of 826 companies in the Oil & Gas industry. To learn more about Phillips 66 stock, you can check out its 30-Year Financials here.
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