Aug 04, 2017

Phillips 66 (NYSE: PSX) Zacks Rank 3-Hold

$85.65 USD ( As of 08/03/17 ) Style:Value: Growth: Momentum: VGM:

Data Overview Summary

52 Week High-Low $88.87 - $74.51 In terms of size, efficiency and strength, Phillips 66 is a leading player in each
20 Day Average Volume 1,986,524
operational segment – refining, chemicals and midstream. The company is working on
fortifying its position by streamlining its asset portfolio and investing extensively. We
Beta 1.22
appreciate Phillips 66’s intention to allocate money to higher margin business units
Market Cap 43.81 B like Midstream and Chemicals instead of extensive refining and marketing operations.
Dividend / Div Yld $2.80 / 3.27% Also, Phillips 66 was able to report strong second-quarter 2017 earnings following
Oil and Gas - Refining and
higher contributions from most of the business segments. However, exponential
Industry increase in debt since the beginning of 2012 is a serious concern. As of the end of Jun
Marketing
2017, the company’s balance sheet had only $2.2 billion of cash balance, while total
Industry Rank 210 / 265 (Bottom 21%)
debt of $10 billion is significantly higher.
Current Ratio 1.40

Debt/Capital 28.46%

Net Margin 1.87%

Elements of the Zacks Rank
Price/Book (P/B) 1.88 Agreement Estimate Revisions (60 days)
Price/Cash Flow (P/CF) 34.80

Earnings Yield 4.79%

67% 83% 71% 86%
Debt/Equity 0.40

Value Score Q1 (Current Qtr) Q2 (Next Qtr) F1 (Current Year) F2 (Next Year)

P/E (F1) 20.56 Revisions: 6 Revisions: 6 Revisions: 7 Revisions: 7

Up: 2 Down: 4 Up: 1 Down: 5 Up: 2 Down: 5 Up: 1 Down: 6
P/E (F1) Rel to Industry -13.19

PEG Ratio 2.28

Magnitude Consensus Estimate Trend (60 days)
P/S (F1) 0.42

P/S (TTM) 0.47

P/CFO 34.80

P/CFO Rel to Industry 19.88

EV/EDITDA Annual 13.92 60 30 7 Current 60 30 7 Current 60 30 7 Current 60 30 7 Current

Days Days Days Days Days Days Days Days Days Days Days Days

Growth Score Q1 +0.68% Q2 -4.12% F1 -4.58% F2 -6.06%

Proj. EPS Growth (F1/F0) 33.57%

Hist. EPS Growth (Q0/Q-1) 5.54 Upside Zacks Consensus Estimate vs. Most Accurate Estimate
Qtr CFO Growth -233.76

2 Yr CFO Growth 163.71

Return on Equity (ROE) 6.06%

(NI - CFO) / Total Assets 0.97 Most Accurate: 1.48 Most Accurate: 0.93 Most Accurate: 4.05 Most Accurate: 5.36
Zacks Consensus: 1.48 Zacks Consensus: 0.93 Zacks Consensus: 4.17 Zacks Consensus: 5.58
Asset Turnover 1.83
Q1 0.00% Q2 0.00% F1 -2.88% F2 -3.94%
Momentum Score
1 week Volume change 20.61% Surprise Reported Earnings History
1 week Price Cng Rel to Industry 3.77%

(F1) EPS Est 1 week change 0.60%

(F1) EPS Est 4 week change -3.17%

(F1) EPS Est 12 week change -2.66%

Reported: 1.09 Reported: 0.56 Reported: 0.16 Reported: 1.05 Average 4 Qtr
(Q1) EPS Est 1 week change 0.79% Surprise
Estimate: 1.02 Estimate: 0.03 Estimate: 0.39 Estimate: 0.89
Q End 06/17 Q End 03/17 Q End 12/16 Q End 09/16

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 The data on the front page and all the charts in the report represent market data as of 08/03/17, while the report's text is as of
08/03/2017

Overview
Based in Houston, TX Phillips 66 is a diversified energy
manufacturing and logistics company with midstream, chemicals,
refining, and marketing and specialties businesses. The company, in
its current form, came into existence following the 2012 spin-off of
ConocoPhillips' (COP) downstream business into a separate,
independent and publicly traded entity. The company processes,
transports, stores and markets fuels and products globally. Phillips 66
Partners, the company's master limited partnership, is an important
asset in the portfolio. As of Dec 31, 2015, Phillips 66 had about
14,000 employees and $49 billion of assets. The company operates
through the four business segments, namely, Midstream, Chemicals,
Refining, and Marketing and Specialties.

Midstream - contributed 13% of the company's 2016 earnings -

gathers, processes, transports and markets natural gas; and
transports, fractionates and markets NGL in the United States.
In addition, this segment transports crude oil and other
feedstocks to its refineries and other locations, and delivers
refined and specialty products to the market.

Chemicals - contributed 29% of earnings - manufacture and

markets petrochemicals and plastics on a worldwide basis. The
segment consists of its 50% equity investment in Chevron
Phillips Chemical Company LLC, a joint venture with Chevron.

Refining- contributed 15% of earnings - buys, sells and refines crude oil and other feedstocks at its refineries. As of year-end
2015, the company owned or had an interest in 14 refineries (2,178 thousand barrels per day (MBbl/d) of combined throughput
capacity), of which 11 were located in the U.S. and three in Europe.

Marketing and Specialties - contributed 43% of earnings - purchases for resale and markets refined products, mainly in the
United States and Europe. In addition, this segment includes the manufacturing and marketing of specialty products

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 Reasons To Buy:
Phillips 66 is the leading player in each of its operations like refining, chemicals and Phillips 66 will likely
midstream in terms of size, efficiency and strengths. The company is on track to allocate money for higher
enhance its potential in every business segment by streamlining its portfolio of assets margin business units like
and by investing in growth developments. Midstream and Chemicals.
The company is likely to allocate money for higher margin business units like Midstream
and Chemicals instead of extensive refining and marketing operations. Midstream business is in high demand in the central U.S. as
there is a huge need for fresh pipeline and infrastructure properties in the flourishing shales. Moreover, improving petrochemical
demand should call for more chemical business in the U.S.

Phillips 66 has an impressive capital deployment record. The company regularly rewards shareholders with increased dividends. In
fact, since its spinoff, the company has hiked dividends every year. This indicates its solid financial strength and steady returns from
operating units. Most importantly, the company is projected to witness nearly 48% year-over-year earnings improvement in 2017.

We appreciate the company’s decision to invest $1.3 billion out of the total 2017 capital budget of $2.3 billion in growth projects. It
is to be noted that during second-quarter 2017, the company reported strong earnings following higher contributions from most of
the business segments.

Reasons To Sell:
Phillips 66 operates its Chemicals business through joint ventures. Meanwhile, the High dependence on debt
other partners have different economic interests and business goals as compared to the financing could hurt the
refiner. Hence, the clash of business motives affects the company’s ability to manage company.
risks, thereby affecting the bottom line.

Free cash flow at Phillips 66 has been mostly negative over the last two years, reflecting weak business operations. Hence, the
company’s ability to pay dividends is at risk. In fact, the current dividend yield of 3.39% is much lower than 6.96% of the Zacks
categorized Oil/Gas Production Pipeline Mlp industry.

Since the beginning of 2012, there has been exponential growth in long-term debt, reflecting Phillips 66’s weak balance sheet. As
of the end of Mar 2017, the company’s balance sheet had only $1.5 billion of cash balance, while total debt of $10.2 billion is
significantly higher.

Oil price is trading much below the level attained during mid-2014. Weak commodity prices could compel upstream players to
reduce their exploration and production activities. This might translate into lower demand for new pipeline infrastructures and hurt
Phillips 66’s midstream business.

Last Earnings Report

Second-Quarter 2017 Results Quarter Ending 06/2017

Report Date Aug 01, 2017

Phillips 66 posted second-quarter 2017 adjusted earnings of $1.09 per share which
surpassed the Zacks Consensus Estimate of $1.02. The bottom line also increased from Sales Surprise -2.23%
the year-ago quarter level of $0.94. The growth came on the back of higher contribution EPS Surprise 6.86%
from all segments, except the Marketing and Specialties segment. Quarterly EPS 1.09
Annual EPS (TTM) 2.86
Quarterly revenues of $24.6 billion were higher than the year-ago quarter level of $22.3
billion. However, the top line lagged the Zacks Consensus Estimate of $25.14 billion.

Segment Results

Midstream

The segment generated adjusted quarterly earnings of $59 million compared with $39 million in the year-ago quarter. Gain from the
sale of a non-core gathering system led to increased income.

Chemicals

The segment generated adjusted earnings of $196 million compared with $190 million in the comparable quarter last year. Higher
volumes and improved margins led to the increase.

Refining

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 The segment’s adjusted earnings of $224 million increased from $149 million in the prior-year quarter. During the quarter, Phillips 66’s
refining utilization was 98% and clean product yield was at 85%.

Marketing and Specialties (M&S)

This segment recorded earnings of $214 million, down from $229 million reported in the comparable quarter last year.

Financial Condition

In the reported quarter, Phillips 66 generated $1.9 billion of cash from operations. It also returned capital worth $741 million to
shareholders. Of this, $360 million was disbursed as dividends, while $381 million was utilized to repurchase common stock.

As of Jun 30, cash and cash equivalents were $2.2 billion alongside $10 billion of debt. The company’s debt-to-capitalization ratio was
30%.

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 Industry Analysis Zacks Industry Rank: 210 / 265 (Bottom 21%) Top Peers

Par Pacific Holdings, Inc. (PARR)

Galp Energia SGPS SA (GLPEY)
HollyFrontier Corporation (HFC)
Murphy USA Inc. (MUSA)
PBF Energy Inc. (PBF)
Tesoro Corporation (ANDV)
Marathon Petroleum Corporation (MPC)
EnLink Midstream, LLC (ENLC)

Industry Comparison Oil And Gas - Refining And Marketing | Position in Industry Peers
Industry: 3 of 11

PSX X Industry S&P 500 VLO MPC INT

VGM Score - -
Market Cap 43.81 B 1.55 B 20.65 B 30.64 B 28.29 B 2.31 B
# of Analysts 11 11 14 14 12 3
Dividend Yield 2.53% 0.23% 1.82% 2.79% 2.44% 0.45%

Value Score - -
Cash/Price -0.88 -0.88 9.88 0.26 11.00 -26.55
EV/EBITDA 13.92 7.43 12.91 6.26 10.22 10.55
PEG Ratio 2.28 2.04 2.00 1.74 1.79 2.97
Price/Book (P/B) 1.88 1.43 3.24 1.48 1.47 1.16
Price/Cash Flow (P/CF) 34.80 10.12 13.50 8.78 9.98 11.37
P/E (F1) 20.56 21.27 19.02 16.74 20.44 14.85
Price/Sales (P/S) 0.42 0.35 2.50 0.35 0.40 0.07
Earnings Yield 4.79% 4.47% 5.22% 5.97% 4.86% 6.72%
Debt/Equity 0.40 0.58 0.68 0.41 0.63 0.52
Cash Flow ($/share) 5.16 2.18 5.41 7.99 6.06 2.96

Growth Score - -
Hist. EPS Growth (3-5 yrs) 33.57% 36.14% 7.16% 11.07% 38.70% -10.45%
Proj. EPS Growth (F1/F0) 47.20% 110.13% 9.54% 9.99% 27.76% 25.41%
Curr. Cash Flow Growth -49.23% -41.57% 5.36% -43.96% -30.59% -17.27%
Hist. Cash Flow Growth (3-5 yrs) -11.56% -1.60% 6.71% -1.09% -0.60% -3.85%
Current Ratio 1.40 1.66 1.36 2.01 1.61 1.69
Debt/Capital 28.46% 36.46% 41.73% 28.84% 40.67% 34.41%
Net Margin 1.87% 1.03% 9.92% 2.17% 1.34% 0.34%
Return on Equity 6.06% 2.55% 15.93% 8.07% 5.59% 6.22%
Sales/Assets 1.83 1.37 0.55 1.83 1.49 5.95
Proj. Sales Growth (F1/F0) 22.56% 18.53% 5.22% 14.16% 12.42% 23.08%

Momentum Score - -
Daily Price Chg -1.18% -0.39% -0.15% 0.00% -0.55% -0.24%
1 Week Price Chg 3.77% 2.20% -0.00% 3.77% 1.96% -12.30%
4 Week Price Chg 4.59% 0.00% 1.43% 3.07% 5.75% -11.01%
12 Week Price Chg 7.71% 1.79% 3.00% 3.24% 6.44% -11.64%
52 Week Price Chg 10.46% 16.93% 12.24% 28.45% 37.56% -26.52%
20 Day Average Volume 1,944,540 301,524 0 3,755,696 3,238,312 514,740
(F1) EPS Est 1 week change 0.60% 0.10% 0.03% 0.19% -0.55% 1.34%
(F1) EPS Est 4 week change -3.17% -4.37% 0.33% -10.11% -4.15% -11.67%
(F1) EPS Est 12 week change -2.66% -8.98% 1.00% -15.41% -7.36% -11.67%
(Q1) EPS Est Mthly Chg 2.07% -11.29% 0.00% -10.40% -11.29% -22.79%

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 Zacks Rank Education
The Zacks Rank is calculated from four primary inputs: Agreement, Magnitude, Upside and Surprise.

Agreement
This is the extent which brokerage analysts are revising their earnings estimates in the same
direction. The greater the percentage of estimates being revised higher, the better the score for this
component.

For example, if there were 10 estimate revisions over the last 60 days, with 8 of those revisions up,
and the other 2 down, then the agreement factor would be 80% positive. If, however, 8 were to the
downside with only 2 of them up, then the agreement factor would be 80% negative. The higher the
percentage of agreement the better.

Magnitude
This is a measure based on the size of the recent change in the current consensus estimates. The
Zacks Rank looks at the magnitude of these changes over the last 60 days.

In the chart to the right, the display shows the consensus estimate from 60-days ago, 30-days ago,
7-days ago, and the most current estimate The difference between the current estimate and the
estimate from 60-days ago is displayed as a percentage. A larger positive percentage increase will
score better on this component.

Upside
This is the difference between the most accurate estimate, as calculated by Zacks, and the
consensus estimate. For example, a stock with a consensus estimate of $1.00, and a most
accurate estimate of $1.05 will have an upside factor of 5%.

This is not an indication of how much a stock will go up or down. Instead, it's a measure of the
difference between these two estimates. This is particularly useful near earnings season as a
positive upside percentage can be used to help predict a future surprise.

Surprise
The Zacks Rank also factors in the last few quarters of earnings surprises. Companies that have
positively surprised in the recent past have a tendency of positively surprising again in the future (or
missing if they recently missed).

A stock with a recent track record of positive surprises will score better on this factor than a stock
with a history of negative surprises. These stocks will have a greater likelihood of positively
surprising again.

Zacks Style Score Education

The Zacks Style Score is as a complementary indicator to the Zacks Rank, giving investors a way to
focus on the best Zacks Rank stocks that best fit their own stock picking preferences. Value Score

Academic research has proven that stocks with the best Growth, Value, and Momentum Growth Score
characteristics outperform the market. The Zacks Style Scores rate stocks on each of these
individual styles and assigns a rating of A, B, C, D and F. An A, is better than a B; a B is better than Momentum Score
a C; and so on.
VGM Score
As an investor, you want to buy stocks with the highest probability of success. That means buying
stocks with a Zacks Rank #1 or #2, Strong Buy or Buy, which also has a Style Score of an A or a B.

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 Disclosures
The analysts contributing to this report do not hold any shares of this stock. The EPS and revenue forecasts are the Zacks
Consensus estimates. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the
analysts' personal views as to the subject securities and issuers. Zacks certifies that no part of the analysts compensation was, is, or
will be, directly or indirectly, related to the specific recommendation or views expressed by the analyst in the report. Additional
information on the securities mentioned in this report is available upon request. This report is based on data obtained from sources we
believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete. Because of individual objectives, the
report should not be construed as advice designed to meet the particular investment needs of any investor. Any opinions expressed
herein are subject to change. This report is not to be construed as an offer or the solicitation of an offer to buy or sell the securities
herein mentioned. Zacks or its officers, employees or customers may have a position long or short in the securities mentioned and buy
or sell the securities from time to time. Zacks uses the following rating system for the securities it covers which results from a
proprietary quantitative model using trends in earnings estimate revisions. This model is proven most effective for judging the timeliness
of a stock over the next 1 to 3 months. The model assigns each stock a rank from 1 through 5. Zacks Rank 1 = Strong Buy. Zacks Rank
2 = Buy. Zacks Rank 3 = Hold. Zacks Rank 4 = Sell. Zacks Rank 5 = Strong Sell. We also provide a Zacks Industry Rank for each
company which provides an idea of the near-term attractiveness of a company s industry group. We have 264 industry groups in total.
Thus, the Zacks Industry Rank is a number between 1 and 264. In terms of investment attractiveness, the higher the rank the better.
Historically, the top half of the industries has outperformed the general market.

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