Opinions John O'Connell, CFA
Phillips 66PSXCOMMENTApr 12, 2017
John O'Connell, CFAStock price when the opinion was issued
As of Jun 10, 2026. Market Open.
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Premium contentOur PAST TOP PICK with PSX has triggered its stop at $92. To remain disciplined, we recommend covering the position at this time. This will result in a net investment loss of 9%, when combined with our previous entry recommendation.
Premium contentWe reiterate this international midstream energy company as a TOP PICK. Expectations for summer travel are bullish, which will support their 2 million bpd downstream operations. It trades under 2x book and 8x earnings, with a ROE of 44%. It pays a good dividend, backed by a payout ratio under 20% of cash flow. We continue to recommend a stop at $92, looking to achieve $121 -- upside potential of 19%. Yield 3.9%
(Analysts’ price target is $121.29)Premium contentTrading at 5x earnings, 1.7x book and supporting a 40% ROE, we reiterate PSX as a TOP PICK. The company has a bio-diesel fuel plant coming on soon in California, which used to process oil. We like that cash reserves are growing and debt is being retired. Its dividend is backed by a payout ratio under 20% of cash flow. We recommend trailing up the stop (from $87) to $92, looking to achieve $126 -- upside potential of 18%. Yield 3.6%
(Analysts’ price target is $126.00)Premium contentPSX is the spin off of ConocoPhillips downstream refining and distribution assets. It is generating outstanding cash flow, allowing cash reserves to grow as debt is retired and stock bought back. It trades under 7x earnings, under 2x book value, and supports a ROE of 40%. We recommend a stop-loss at $87, looking to achieve $125 - upside of 27%. Yield 4.0%
(Analysts’ price target is $125.36)
Lorne Steinberg
Ross Healy
Warren Buffett has been picking away at this. It is very difficult to build a refinery. There is a limited number of competitors, so they are well situated. The drawback is that you are beholden to crack spreads, basically the value of all the different components of a barrel of oil after it has been refined. In the past couple of years, it has been a very, very good business, but it is a cyclical business. The ways the composition of crude oil is coming to refineries is changing. He would prefer going to where the greatest value is, which is going to be the crude producers.