UPDATE: BMO Capital Starts Phillips 66 (PSX) at Outperform

BMO Capital analyst Phillip Jungwirth initiates coverage on Phillips 66 (NYSE: PSX) with a Outperform rating and a price target of $132.00.

The analyst comments "We see significant value in PSX shares, which have notably lagged refining peers during this upcycle. While the company’s more diversified business mix with large midstream, chemicals, and marketing assets, carries lower beta, Phillips also benefits from strong refining margins and we see a positive risk/reward for the shares. Lower capital spending (<$2Bn in 2022/23) should improve Phillips’ FCF conversion and yield, while the recently announced >$700mm cost reduction program should improve refining’s competitiveness and improve margins by $1Bbl. Phillips also benefits to a greater degree than peers from strong diesel prices and wider WCS differentials, both of which are tailwinds currently. Phillips has recently resumed its share buyback plan with a $2.5Bn authorization, while the company looks to return 40% of CFO to shareholders long-term. Gross debt is back to prepandemic levels, providing additional cash return flexibility. Our $132 target price for Phillips 66 implies a 2023 valuation multiple 11.7x EPS, which is in line with the company’s 10-year median of 12.1x. Our sum-of-the-parts valuation for Phillips is $148. We estimate midstream comps trade at a ~4x EV/EBITDA premium to pure play refiners, while marketing & specialty comps trade at a similar premium, with chemicals comps in line with refiners. As such, we think this supports a higher valuation for Phillips, with EV/EBITDA currently at only a slight premium to peers. We also view Phillips as having a higher terminal value than peers given its chemicals business and energy transition opportunities ($2Bn total by 2030; $1Bn renewable fuels)."

For an analyst ratings summary and ratings history on Phillips 66 click here. For more ratings news on Phillips 66 click here.

Shares of Phillips 66 closed at $106.31 yesterday.

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