Phillips 66: Buy for Big Gains

The mid-stream business of Phillips 66 (PSX) is generating significant cash flow from operation fueled by in parts from its refining and M&S operations. As a result, the company generated $5.9 billion in cash from operations. This not only helped Phillips to return approximately $2.7 billion to its shareholders through dividend and share repurchases, but to invest over $1 billion in capital spending to support midstream growth and maintaining operating integrity in our refining system. In fact, the company started the fiscal year 2016 with a cash balance of $5.2 billion.

Its strong cash flow from operations has enabled the company to raise its dividend by 10% in 2016.
Phillips 66 split between reinvestment and distributions now stands at in the ratio of 60:40.

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What is more, the recent start up of the Fractionator One and supporting Clemens storage caverns should drive its midstream growth in 2016. In fact, the company will be completing several other midstream projects in 2016 that should contribute to its growth this year. For instance, its Freeport LPG export terminal is now 80% complete. Phillips 66 expects the startup for this project to take place in the fourth quarter of 2016. Also, the Dakota Access and ETCOP pipeline projects also continue to make good progress and remain on schedule for completion by the end of this year.

Therefore, operationally the company remains solid as it is able to generate strong cash flow from its midstream as well as chemical segments that can easily cover its overall expenditure. Moreover, Phillips 66 balance sheet provides the financial flexibility to further strengthen its growth in the coming years. Its balance sheet carries total cash of $3.07 billion and has total debt of $8.89 billion.


Although, Phillips 66 has not done that well on the stock market, but the company has done well during the course of 2015. The completions of its midstream and chemical projects this year and in the coming years should drive its growth in the long-run. Moreover, the demand for chemical products will stay at a peak due to lower crude oil prices that should play a positive role in driving the bottom line performance of Phillips 66 this year.
Published on Mar 17, 2016
By Yaggyaseni Mittra

Copyrighted 2020. Content published with author's permission.

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