Energy prices soared last year due to the Ukraine-Russia war. After a brief period of cooling down, energy prices have started inching higher lately. Shares of energy giant Phillips 66 (PSX) have gained more than 9.7% over the past month, indicating strong buying interest amongst investors.
In this piece, I discussed why investors are fighting to own this stock.
Recently, Townsend Asset Management Corp NC ADV purchased 3,374 shares of PSX valued at approximately $351,000. PSX’s revenue was 1.9% higher than analyst estimates in the fourth quarter. However, its EPS came in 8.1% below the consensus estimate.
PSX’s President and CEO, Mark Lashier, said, “Our integrated portfolio positioned us to generate robust earnings and cash flow in 2022, supported by a favorable market environment, solid operations, and strong safety performance.”
“We are focused on safely and reliably providing energy to meet the world’s growing energy needs. We are on track to deliver $1 billion of annualized savings by year-end 2023. In addition, we continue to grow our NGL business with the integration of DCP Midstream and recently reached an agreement to acquire all public common units. We remain committed to operating excellence and disciplined capital allocation as we execute our strategic priorities,” he added.
The national average price of gasoline has been climbing as oil prices touched their highest level this year. According to AAA, the national average for a gallon of regular unleaded gasoline is up from $3.45 a month ago to $3.67 currently.
GasBuddy’s head of petroleum analysis, Patrick De Haan, said, “With oil prices touching their highest level of 2023 at nearly $83 per barrel, the national average price of gasoline has continued to inch higher, with 45 of the nation’s 50 states seeing prices rise over the last week.”
The rise in oil and gas prices could be attributed to the cut in oil production by OPEC+. The OPEC+ countries announced collective output cuts totaling 1.66 million barrels per day.
AAA spokesperson Andrew Gross said, “When the cost of crude oil crosses the $80 a barrel mark, that puts a lot of upward pressure on what we pay at the pump. And as long as oil costs remain at the current level, drivers will likely see incremental price increases for now.”
According to the International Energy Agency (IEA), world oil demand will climb by 2 mb/d (million barrels per day) in 2023 to a record 101.90 mb/d, driven by a ‘resurgent’ China, which is expected to account for 90% of growth in oil demand.
PSX paid a dividend of $1.05 to shareholders on March 1, 2023. Its annual dividend of $4.20 yields 4.04% on the current share price. The company’s dividend payouts have increased at a 3.2% CAGR over the past three years and a 7.2% CAGR over the past five years. Its four-year average yield is 4.35%.
The stock has gained 27.3% in price over the past nine months and 25.4% over the past year to close the last trading session at $103.92.
Here’s what could influence PSX’s performance in the upcoming months:
Robust Financials
PSX’s consolidated earnings for the fourth quarter ended December 31, 2022, increased 48% year-over-year to $1.88 billion. Its adjusted earnings increased 46.3% over the prior-year quarter to $1.90 billion. In addition, its adjusted EPS came in at $4, representing an increase of 36.1% year-over-year.
For the fiscal year ended December 31, 2022, PSX’s total revenues and other income increased 53% year-over-year to $175.70 billion. Its adjusted earnings rose 253.1% over the prior-year period to $8.90 billion. Also, its adjusted EPS came in at $18.79, representing an increase of 229.6% year-over-year.
Mixed Analyst Estimates
Analysts expect PSX’s EPS for the quarter ending March 31, 2023, to increase 168.6% year-over-year to $3.55.
Its EPS for fiscal 2023 and 2024 is expected to decline 22.2% and 11.5% year-over-year to $14.62 and $12.94. Likewise, its revenue for fiscal 2023 and 2024 is expected to decline 15.6% and 2.5% year-over-year to $148.38 billion and $144.65 billion.
Solid Historical Growth
PSX’s EBIT grew at a CAGR of 43.6% over the past three years. Its EPS grew at a CAGR of 50.9% over the past three years. In addition, its net income grew at a CAGR of 53% in the same time frame.
Mixed Profitability
In terms of the trailing-12-month Return on Common Equity, PSX’s 45.27% is 111.1% higher than the 21.44% industry average. Likewise, its 14.42% trailing-12-month Return on Total Assets is 103.4% higher than the industry average of 7.09%.
On the other hand, its 1.29% trailing-12-month Capex/Sales is 88.9% lower than the 11.67% industry average. Likewise, its 3.04% trailing-12-month levered FCF margin is 54.9% lower than the 6.76% industry average.
Discounted Valuation
In terms of forward EV/Sales, PSX’s 0.44x is 76.2% lower than the 1.83x industry average. Its 6.53x forward EV/EBIT is 20% lower than the 8.16x industry average. Likewise, its 0.32x forward Price/Sales is 75.5% lower than the 1.32x industry average.
POWR Ratings Show Promise
PSX has an overall rating of A, equating to a Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. PSX has a B grade for Value, consistent with its discounted valuation.
It has an A grade for Growth, in sync with solid historical growth.
PSX is ranked #3 out of 91 stocks in the Energy – Oil & Gas industry. Click here to access PSX’s ratings for Momentum, Stability, Sentiment, and Quality.
Bottom Line
PSX’s stock is trading above its 50-day and 200-day moving averages of $101.24 and $96.64, respectively, indicating an uptrend.
Given its robust financials, strong historical growth, solid dividend yields, and discounted valuation, it could be wise to buy the stock now.
How Does Phillips 66 (PSX) Stack Up Against Its Peers?
PSX has an overall POWR Rating of A, which equates to a Strong Buy rating. Check out these other stocks within the Energy – Oil & Gas industry with A (Strong Buy) or B (Buy) ratings: Valero Energy Corporation (VLO), Marathon Petroleum Corporation (MPC), and PBF Energy Inc. (PBF).
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PSX shares fell $0.11 (-0.11%) in premarket trading Tuesday. Year-to-date, PSX has gained 0.75%, versus a 9.15% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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