PSX - Embedded Expectations Analysis - 2018 10 05
Philips 66 (PSX:USA) currently trades near historical averages relative to UAFRS-based (Uniform) Assets, with a 1.3x Uniform P/B. At these levels, the market has bullish expectations for the firm, but management has concerns about compression of margins, their Midstream performance, and production growthSpecifically, management may lack confidence in their ability to sustain strength in their CPChem segment, particularly the new Gulf Coast Petrochemicals assets. Furthermore, they may lack confidence in their ability to prevent further margin compression from the cracker, and to improve efficiency of the cracker. Moreover, they may be concerned about their ability to flip their Grey Oak project to achieve expected production of 1 million barrels per day, and may be exaggerating demand for certain assets on the open market. They may also lack confidence in their ability to maintain strength in the Midstream segment, incentive distributions, and clean product yield. Finally, they may lack confidence in their ability to leverage their integrated infrastructure to source more advantaged crudes, and to improve margins per barrel, specifically lower RIN costs
Phillips 66 is an energy manufacturing and logistics company with midstream, chemicals, refining, and marketing and specialties businesses. The company's segments include: Midstream, which provides crude oil and refined petroleum product transportation, terminaling and processing services, as well as natural gas and natural gas liquids transportation, storage, processing and marketing services; Chemicals, which manufactures and markets petrochemicals and plastics on a worldwide basis; Refining, which refines crude oil and other feedstocks into petroleum products; and Marketing and Specialties, which purchases for resale and markets refined petroleum products, mainly in the United States and Europe.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
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