EUR 850.00 For Business Accounts Only

Morningstar | Phillips 66 Partners Reports Solid 1Q; Maintaining $55 FVE

Phillips 66 Partners reported a solid first quarter, and we plan to maintain our $55 fair value estimate and narrow moat rating. Earnings were slightly weaker sequentially due to planned refinery turnarounds, but results still look on track to meet our full-year expectations. We think it is prudent for Phillips 66 Partners to slow its distribution growth, as the $0.845 cash distribution is up 18% from 2017 levels but just 1% sequentially. With a coverage ratio of 1.3 times, we expect the retained cash to be used for funding capital projects such as Gray Oak. The high coverage ratio should also help shield unitholders from a distribution cut when if the partnership pursues the elimination of its incentive distribution rights in the future, as we expect. The partnership continues to have ample financial flexibility to pursue any number of new organic or inorganic opportunities with expected 2019 EBITDA of $1.3 billion compared with just $3.2 billion in debt for a debt/EBITDA ratio well under 3 times. Key projects under construction include Gray Oak, a 900,000 barrel/day Permian pipeline, due in service at the end of 2019, as well as the Bakken pipeline. The Bakken pipeline, which moves Bakken crude to Illinois, recently expanded its capacity to 570,000 b/d in March from 520,000 b/d and is targeting a new expansion in late 2020.