Has Phillips 66 Stock Run Ahead of its Underlying Fundamentals?

Phillips 66 PSX appears overvalued at current levels, trading at a trailing 12-month EV/EBITDA of 14.41x—well above the broader industry average of 4.42x, Par Pacific Holdings’ PARR 4.45x and Valero Energy Corporation’s VLO 7.90x.

From the investor perspective, Phillips 66 is now valued richly, but is the valuation justified? To determine this, let’s analyze the company’s business fundamentals and the overall oil pricing environment, since raw crude is an input for refiners before the final products are produced.

Softness in Oil Prices to Aid PSX's Refining Business

With West Texas Intermediate (WTI) oil prices currently trading below $60 per barrel, according to data from Oilprice.com, which is significantly lower than a year ago, the overall energy business is now highly uncertain. However, unlike many other energy players, Phillips 66 is expected to gain from the current crude pricing environment.

This is because Phillips 66 is a leading refining company and is now able to purchase oil at a lower cost, enabling the production of end products, such as gasoline, aviation fuel, diesel and distillates. Additionally, crude prices are likely to remain soft in the coming days, as the U.S. Energy Information Administration (“EIA”) expects global oil inventories to continue increasing.

EIA projects the spot average West Texas Intermediate price for 2026 at $51.42 per barrel, lower than $65.32 per barrel in 2025. Thus, like VLO and PARR, PSX, which generates the majority of its gross margin from refining activities, is expected to benefit from soft oil prices.

PSX’s Strong Focus on Midstream is a Plus

Although a leading refiner, PSX, unlike most of its refining peers, has diversified its business across midstream and chemicals. Along with investing in refining operations, Phillips 66 is allocating almost the same capital for midstream. For 2026, PSX has decided to allocate $1,110 million of capital for each of refining and midstream activities.  

Midstream business, by its very definition, is stable since it generates stable cash flows as the assets are being utilized for the long term, and is less vulnerable to commodity price volatility.

Should Investors Bet on the Stock Now?

All the positive developments are being reflected in the price chart. Over the past year, PSX has jumped 26.1%, outpacing the 16.9% improvement of the composite stocks belonging to the industry. VLO and PARR, other well-known refiners, surged 50.2% and 120.5%, respectively, over the same time frame. 

One-Year Price Chart

Considering the backdrop, it has been a clear fact that, unlike many other refining companies, PSX is not solely dependent on its refining operations. It has diversified its presence in midstream and chemicals as well, reflecting a stable business model.  This is why investors are willing to pay a premium for the stock. Therefore, it is advisable to invest in PSX stock immediately, which currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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