Summary
- Phillips 66 owns a diverse portfolio of refining, midstream, chemicals, marketing and specialties businesses which reduce the company’s exposure to oil price cycles.
- Phillips 66 is working on several midstream projects which will drive its earnings growth in the coming quarters while its chemical business can fuel long-term growth.
- Phillips 66 generates tons of free cash flows and then returns the excess cash to shareholders as dividends and buybacks.
The persistent weakness and volatility in the oil market has hurt numerous energy stocks, except Phillips 66 (PSX). The Houston, Texas-based company benefits from having a diverse asset base of refining, midstream, and chemical businesses and will likely deliver higher levels of earnings and cash flows in the future. Phillips 66 will also generate tons of excess cash which it will use to reward shareholders with dividends and buybacks. In my view, Phillips 66 is a great energy stock that should continue to outperform.
Image: Phillips 66 Investor Presentation, August 2019.
The past few months have been tough for energy companies. The persistent weakness and volatility in crude oil prices have clouded the outlook of several energy companies and pushed many stocks lower. The SPDR Energy Select Sector ETF (XLE), the industry’s benchmark fund, has fallen by almost 14% in the last six months. Even the high-yielding midstream master limited partnerships (AMLP) have also fallen by 13% in this period, even though most midstream firms have no direct exposure to oil prices. Phillips 66, however, has managed to outperform most energy names by a big margin. The company’s shares have risen by 9.6% in this period. I think Wall Street has recognized Phillips 66’s unique mix of diverse energy assets which can deliver strong profits and cash flows, even as oil prices fluctuate.
