Phillips 66 (PSX, Financial) has recently shown a daily gain of 5.46% and a 3-month gain of 14.11%, with an impressive Earnings Per Share (EPS) of 16.58. However, the critical question remains: is the stock modestly overvalued? This article offers a valuation analysis to explore Phillips 66's current market position and determine whether its stock price accurately reflects its intrinsic value. Read on for an in-depth analysis.
Company Overview
Phillips 66 is a leading independent refiner with a substantial presence in the oil and gas industry. The company operates 12 refinaries with a total crude throughput capacity of 1.9 million barrels per day. In an industry-shaping move, its Rodeo, California, facility will transition to producing renewable diesel in 2023. The midstream segment of Phillips 66 boasts extensive transportation assets, NGL processing capabilities, and a strategic joint venture in CPChem, which operates facilities in the United States and the Middle East. With a current stock price of $128.89 and a GF Value estimated at $112.99, we delve into whether Phillips 66 is trading above its fair value.
Understanding GF Value
The GF Value is a unique valuation metric that combines historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates to determine a stock's intrinsic value. This value serves as a benchmark, indicating whether a stock is trading at, above, or below its fair value. Phillips 66 (PSX, Financial) is currently considered modestly overvalued according to our GF Value, suggesting the potential for a lower long-term return compared to its business growth.
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Financial Strength
Investing in companies with robust financial strength is crucial to avoid permanent capital loss. Phillips 66's cash-to-debt ratio of 0.18 ranks below the industry average, leading to a fair financial strength rating of 7 out of 10 from GuruFocus.
Profitability and Growth
Phillips 66 has maintained profitability for 9 of the past 10 years, with a revenue of $149.40 billion and an Earnings Per Share (EPS) of $16.58. Despite an operating margin of 5.73%, which is below the industry median, the company's profitability is ranked 7 out of 10. Additionally, Phillips 66's average annual revenue growth of 14.9% positions it well within its industry, reflecting a strong growth profile.
ROIC vs. WACC
Comparing Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC) is another way to gauge profitability. Phillips 66's ROIC of 11.51 exceeds its WACC of 8.74, indicating value creation for shareholders. A historical comparison of ROIC vs. WACC underscores the company's efficient capital allocation.
Conclusion
In summary, Phillips 66 (PSX, Financial) appears to be modestly overvalued when compared to its GF Value. The company's financial condition and profitability are fair, and its growth outperforms a significant portion of its industry peers. For a more detailed understanding of Phillips 66's financial health, interested parties are encouraged to examine its 30-Year Financials.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
