Phillips 66 (NYSE: PSX), an energy company with a market capitalization of $51.9 billion, saw its share price increase by 16.0% over the last month. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could shares still be trading at a relatively cheap price? Let’s take a look at Phillips 66’s outlook and value based on its most recent financial data to see if there are any catalysts for a price change.
Is Phillips 66 Still Cheap?
The stock seems fairly valued at the moment according to 4 separate valuation analyses. Shares are trading roughly 3% above its intrinsic value. This means if you were to buy Phillips 66 today, you’d be paying a reasonable price for it. If you believe that the stock is really worth $107.67, then there isn’t much room for the share price to appreciate beyond where it’s currently trading.
|Analysis||Model Fair Value||Upside (Downside)|
|Peer EBITDA Multiples||$113.46||2.1%|
|Peer P/E Multiples||$132.84||19.5%|
|Dividend Discount Model (multi-stage)||$75.22||-32.3%|
|Earnings Power Value||$109.15||-1.8%|
Click on any of the analyses above to view the latest model with real-time data.
In addition, it seems like Phillips 66’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s fairly valued. This is because the stock is less volatile than the wider market given its beta of 0.82.
What Does The Future Of Phillips 66 Look Like?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company’s future expectations.
source: finbox.io data explorer
Phillips 66’s revenue growth is expected to average 13.1% over the next five fiscal years, indicating a solid future ahead. Unless expenses grow at the same level, or higher, this top-line growth should lead to robust cash flows, feeding into a higher share value.
How This Impacts You
Many investors separate stocks into value and growth categories based on quantitative metrics. However, one of the most famous investors in the world views this as foolish. In Warren Buffett’s 1992 letter to Berkshire Hathaway shareholders, Buffett touches upon a subject at odds with much of the investment industry:
“Most analysts feel they must choose between two approaches customarily thought to be in opposition: ‘value’ and ‘growth.’ Indeed, many investment professionals see any mixing of the two terms as a form of intellectual cross-dressing. We view that as fuzzy thinking… In our opinion, the two approaches are joined at the hip: Growth is always a component in the calculation of value.”
While investors tend to categorize stocks into value and growth, some of the most successful investors view growth as simply one component of a company’s value.
Phillips 66’s optimistic future growth appears to have been factored into the current share price with the stock now trading near its intrinsic value. As a shareholder, you may have already conducted your fundamental analysis on the company and the stock’s recent appreciation may have been expected. Therefore, it may be time for investors to take some chips off the table. For prospective investors looking to purchase shares of Phillips 66, it may be worth holding off until the stock develops a wider margin of safety.
But before making an investment decision, I recommend you continue to research Phillips 66 to get a more comprehensive view of the company by looking at:
Risk Metrics: what is Phillips 66’s cash ratio which is used to assess a company’s short-term liquidity. View the company’s cash ratio here.
Valuation Metrics: what is Phillips 66’s free cash flow yield and how does it compare to its publicly traded peers? This metric measures the amount of free cash flow for each dollar of equity (market capitalization). Analyze the free cash flow yield here.
Efficiency Metrics: return on equity is used to measure the return that a firm generates on the book value of common equity. View Phillips 66’s return on equity here.
As of this writing, I did not hold a position in any of the aforementioned securities and this is not a buy or sell recommendation on any security mentioned.