Phillips 66 Stock: Buy at a Premium or Wait for a Better Entry Point?

Phillips 66 PSX is trading at a trailing 12-month EV/EBITDA multiple of 13.25x, which is higher than the broader industry average of 5.13x. Valero Energy Corporation VLO and Par Pacific Holdings, Inc. PARR, two other refiners, are valued at 7.87x and 5.06x, respectively.

It seems that investors are willing to pay a premium for PSX, but is it truly justified? Before exploring this further, it's better to first analyze the company’s overall business environment. Softer crude oil prices will benefit PSX's refining business, as well as those of VLO and PARR.

Phillips 66's Refining Segment Poised for Continued Strength

West Texas Intermediate (WTI) oil price is currently hovering around $63 per barrel, according to data from Oilprice.com, which is significantly lower than a year ago. Phillips 66 is likely to gain from the softer crude pricing environment.

This is because PSX, a leading refining company, is now able to purchase oil at a lower cost, enabling the production of end products. 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 $53.42 per barrel, lower than $65.40 per barrel in 2025. Thus, Phillips 66, which generates significant margin from its refining activities, is likely to benefit from lower oil prices.

Phillips 66's Diversified Business Model

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. Hence, having a diversified business model, PSX is insulated from the commodity price volatility to a great extent.

What to Do With the Stock?

Despite the positive developments, PSX underperformed the industry when it comes to the one-year price chart. Over the period, the stock has gained 24.8%, underperforming the industry’s 27.2% jump. Over the same time frame, PARR jumped 170.6%, and VLO surged 47.9%.

Coming to the balance sheet, at the end of the fourth quarter of 2025, PSX’s net debt to capital was 38%. Although management targets debt reduction, current leverage remains elevated relative to their 30% target.

Thus, investors shouldn’t rush to bet on the overvalued stock right away. Those who have already invested in Phillips 66 may hold the stock. It currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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

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