Assessing Phillips 66 (PSX) Valuation As Western Gateway Pipeline Open Season Is Extended

Why the Western Gateway extension matters for Phillips 66 (PSX)

Phillips 66 (PSX) and Kinder Morgan extended the second open season for the proposed Western Gateway refined products pipeline, drawing attention to how long term shipping commitments might affect the company’s midstream cash flow profile.

See our latest analysis for Phillips 66.

Investors appear to be responding to the Western Gateway progress, with Phillips 66’s share price up 23.94% over 30 days and 47.38% over 90 days. The 1 year total shareholder return sits at 60.31%, which points to strong recent momentum against a solid multi year backdrop.

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With Phillips 66 now trading at US$188.28, above the US$166.95 analyst price target but still carrying an estimated 8% intrinsic discount, are you looking at an efficient market or a genuine opportunity that assumes less future growth than markets do?

Most Popular Narrative: 29.9% Undervalued

According to the leading narrative for Phillips 66, a fair value of $268.71 sits well above the last close at $188.28, which frames the recent share price strength in a different light.

Phillips 66 (PSX) is often considered undervalued for several reasons. Investment analysis typically looks at various factors to determine if a company's stock might be undervalued and whether it has the potential to achieve higher profit margins. Here is a summary based on typical financial articles and analyses:

Read the complete narrative.

Curious what kind of revenue growth, profit margins and future earnings multiple underpin a valuation almost $80 above today’s price? The narrative uses a relatively low growth outlook, compressed margins and a richer earnings multiple, all filtered through a 6% discount rate. The full set of assumptions shows exactly how those pieces combine to reach that $268.71 figure.

Result: Fair Value of $268.71 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, this depends on assumptions that could easily be challenged if refining margins tighten or if the market assigns a future P/E below 20x.

Find out about the key risks to this Phillips 66 narrative.

Next Steps

See a mix of optimism and concern in this story? Move quickly, review the underlying assumptions yourself, and weigh up the 4 key rewards and 3 important warning signs

Looking for more investment ideas?

If this Phillips 66 story has your attention, now is the moment to broaden your watchlist and compare it with other compelling opportunities before the market moves on.

• Target resilient cash generators by reviewing companies in the 61 high quality undervalued stocks that pair quality fundamentals with potentially attractive pricing.
• Strengthen your income focus by zeroing in on potential 12 dividend fortresses that could complement a total return mindset.
• Prioritize capital protection by assessing companies in the 67 resilient stocks with low risk scores that may offer a steadier ride through different market conditions.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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