Morgan Stanley Stays Cautious on Phillips 66 (PSX) Due to Strategic Issues

On Thursday, May 22, Morgan Stanley analyst Joe Laetsch maintained a Hold rating on Phillips 66 (NYSE:PSX) stock with an unchanged price target of $122.

His cautious view mainly stems from recent shareholder disagreements and execution concerns over the company’s financial targets.

On May 21, Phillips 66 held its annual meeting of shareholders, where it elected two nominees backed by the activist investor Elliott Management. The election of these two, who have significant refining and midstream experience, reflects well on the company’s willingness to improve operations and efficiencies. However, the analyst remains concerned because, despite continuous efforts over the last few quarters, the company has been unable to improve its refining EBITDA margin towards its mid-cycle targets.

The analyst further notes that the company’s and Elliott’s nominees disagreed on some proposals, which indicates a lack of consensus among the board members. Moreover, he believes that the company lacks conviction in strategic decisions such as integration and divestments, which slows down operational improvement. As a result, he prefers to remain on the sidelines.

Phillips 66 (NYSE:PSX) is an integrated downstream energy provider with a portfolio that includes midstream, chemicals, refining, marketing, specialties, and renewable fuels businesses.

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