Get Your Kicks On Phillips 66

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[Check it Out]( What we’re watching [Get Your Kicks On Phillips 66]( Even though we are moving towards clean energy that doesn't mean Americans will stop buying gasoline anytime soon. [Watch Now]( Stock Analysis Get Your Kicks On Phillips 66 Yes, the world is moving towards clean energy at breakneck speed. But that doesn’t mean Americans will stop buying gasoline anytime soon. The US Energy Information Administration (EIA) doesn’t show oil demand leveling off for another 8 years. Even then we’re still expected to see demand for gasoline continue to grow. That’s why Phillips 66 (PSX) is in a great position to capitalize over the next decade. As a mid and downstream oil company, Phillips relies less on the price of oil and more on the volume of sales. We picked up on Phillips when we took a look through the top Oil & Gas Refining & Marketing stock searches by financial pros this month. Comparing several refiners, we felt that given the cyclical nature of refining, we wanted a company with a healthy dividend, reasonable valuation, and some catalyst to help propel prices higher. So, let’s discuss why we think Phillps 66 is that stock. Phillips 66 Business Spun off from ConocoPhillips in 2012, Phillips 66 operations incorporate oil refining, transportation, marketing, and chemicals. Phillips’ midstream operations are massive with 22,000 miles of pipes and more expected to come online. This is a significant boon as demand remains extremely high and production picks up in the flourishing shale plays. Refining had been a key contributor to the company’s profitability up until 2018. Since then, the company has struggled with its Gulf Coast operations, specifically the Alliance refinery in southeast Louisiana which it finally put up for sale. That said, the company is doing an excellent job moving away from refining towards more profitable midstream operations. Phillips also announced that it would buy the remaining units of Phillips 66 Partners (a master limited partnership) that it didn’t already own for $3.4 billion, simplifying its corporate structure. Financials Like most businesses, Phillips 66 got clobbered by the pandemic as gas stations saw few customers. That led to the first negative free cash flow since the company spun off. However, the company still turned a solid operating cash flow. Like many refiners, Phillips saw its gross margins decline after 2017. Yet, the shift towards midstream will ultimately provide more stability to the business. While the company has needed more cash in recent years, we don’t like its long-term debt increase from $9.6 billion in 2016 to $14.7 billion in 2020. The good news is that management has begun to pay down the debt, taking it to $13.4 billion in the most recent quarter. Valuation Given the cyclicality of refining, we thought it best to stack Phillips 66 up against competitors Valero (VLO) and Marathon (MPC) to see how it performed. Earnings are too volatile for us to make anything out of them. Instead, we look at the price to sales and price to cash flow. Phillips’ P/S looks excellent, though not much different than its peers. However, its price to cash flow appears significantly better, which we like. As we turn to growth, we find Phillips has done well, though Marathon shows much higher growth in the last several years. The last piece we want to look at is the profitability of each company. Notably, Phillips and Marathon have gross margins close to one another. However, Phillips doesn’t score well on any of the other metrics save cash from operations. What we do want to point out is that Phillips pays out a 4.75% dividend yield compared to Valero’s 5.1% and Marathon’s 3.54%. Our Opinion - 9/10 We know that Phillips’ profitability is currently being dragged down by their gulf coast operations. We also know they plan to sell one of their worst facilities down there. Combined with the push more towards midstream operations and a healthy 4.75% dividend, we like Phillips a bit better than its peers. Operations deliver a healthy cash flow and we expect that to increase as the company sheds underperforming assets. [Make sure to sign up for The Juice to keep receiving our premier investment newsletter.]( # [submit to reddit]( [submit to reddit]( [submit to reddit]( To ensure delivery of all emails, [whitelist us](. Update your email preferences or unsubscribe [here](. View our privacy policy [here](#). Copyright ©2021 InvestingChannel. All rights reserved. 1325 Avenue of the Americas, Floor 27 & 28 New York, New York 10019 Disclaimer: This is not investment advice. This InvestingChannel, Inc. newsletter is for information purposes only and opinion-based. 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