On Friday, TD Cowen reaffirmed its positive stance on Phillips 66 (NYSE:PSX), maintaining a buy rating and a price target of $164.00. The energy company recently announced the divestiture of its 25% stake in Rockies Express Pipeline (REX), a transaction that analysts believe was executed at a favorable valuation, approximately 10 times the earnings before interest, taxes, depreciation, and amortization (EV/EBITDA). This valuation surpasses Phillips 66's historical average multiple of 8 times EV/EBITDA.
The firm estimates that the cash yield from the sale ranges between 12% and 15%, which is higher than the 10% cash flow yield used to assess the company's value on a sustaining basis. The analyst firm views the sale as a strategic move to manage debt while the company continues its share repurchase program to meet its stated target for the year.
TD Cowen highlighted that asset sales such as this are necessary for Phillips 66 to address its debt obligations, especially in light of its share buyback strategy. The firm also noted that near-term commodity trends have been less favorable for Phillips 66 compared to its peers, which could potentially affect its second-quarter performance, as discussed in their 2Q earnings recap. Despite this, the firm's outlook on the stock remains unchanged, with a continued recommendation to buy.
In other recent news, Phillips 66 made significant moves in its asset portfolio. The company finalized the sale of its 25% stake in the Rockies Express Pipeline to a subsidiary of Tallgrass Energy, LP for approximately $1.275 billion. This sale is part of Phillips 66's strategy to divest over $3 billion in assets, aligning with the company's broader commitment to a lower-carbon future.
In addition to this divestment, Phillips 66 has agreed to acquire Pinnacle Midland Parent LLC from Energy Spectrum Capital for $550 million. This acquisition is set to bolster Phillips 66's Midstream business and aligns with the company's long-term objectives of building out its natural gas liquids value chain.
Analysts' perspectives on Phillips 66 have varied recently. Piper Sandler maintained an Overweight rating on the company's stock, while Barclays Capital Inc. assigned an Equal Weight rating. These differing views reflect the company's diverse prospects and recent strategic moves.
Phillips 66 also reported a revised EPS/EBITDA of $2.02 per share/$1,979MM from a previous estimate of $2.83 per share/$2,429MM. Despite facing maintenance issues and the impact of rising commodity prices, the company remains prepared for peak summer demand with assets running near historical highs. These are among the recent developments shaping the current status of Phillips 66.
InvestingPro Insights
In light of TD Cowen's reaffirmed positive outlook on Phillips 66, examining key financial metrics from InvestingPro can provide additional context for investors. With a market capitalization of $58.24 billion, Phillips 66 shows a robust presence in the energy sector.
The company's current P/E ratio stands at 10.46, indicating a potentially attractive valuation compared to industry peers, especially when considering the adjusted P/E ratio for the last twelve months as of Q1 2024, which is slightly lower at 9.88. This suggests a reasonable price for the earnings power of the company.
Investors looking for dividend income may find Phillips 66's dividend yield of 3.34% to be compelling, coupled with a notable dividend growth of 9.52% in the same period. Furthermore, the stock has experienced a significant 48.77% one-year price total return as of this year's data, highlighting a strong performance over the past twelve months.
For those considering an investment in Phillips 66, PRONEWS24 can be used to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro, where subscribers can find even more detailed analysis and metrics, including over 15 additional InvestingPro Tips tailored to help make informed decisions.
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