EUR 850.00 For Business Accounts Only

Morningstar | Phillips 66 Partners Reports Solid Quarter; Project Pipeline Looks Strong

Phillips 66 Partners reported a solid fourth quarter, and we plan to maintain our $55 fair value estimate and narrow moat rating. Results met our expectations, with EBITDA of $309 million for the quarter and $1.1 billion for the full year. Annualizing EBITDA puts Phillips 66 Partners' debt/EBITDA ratio at an estimated 2.4 times, far lower than the 4 times it could leverage up if needed. Even with its current capital spending plans on an attractive series of projects, we only expect leverage to reach 3.5 times in 2020, meaning the partnership has ample capacity to pursue even more investments. We continue to remain impressed with the current portfolio of projects, which includes the 900,000 bpd Gray Oaks pipeline, related marine terminals and storage capacity, incremental natural gas liquids storage capacity at Clemens Caverns, and investments in the Sweeny to Pasadena pipeline. We expect these investments to help push EBITDA to $1.5 billion by 2020.

With a coverage ratio of 1.39 times for the quarter, the partnership is well positioned to eliminate its incentive distribution rights without materially damaging the distribution per unit payout, which we would think would be a wise move. However, management continues to evaluate the timing and pricing for such an action, so this unitholder-friendly move has been pushed back once again.