PSX - Embedded Expectations Analysis - 2019 09 17
Philips 66 (PSX:USA) currently trades below historical averages relative to UAFRS-based (Uniform) Assets, with a 23.8x Uniform P/E. At these levels, the market has bearish expectations for the firm, and management may be concerned about income growth, crack spreads, and their cash position.Specifically, management is confident PSXP negatively impacts cost of capital, and they may lack confidence in the sustainability of recent income growth in their DCP Midstream SA&S businesses. Moreover, they may be concerned about the sustainability of recent crack spreads and their cash position. Furthermore, they may be concerned about the sustainability of recent reinvestment rates, and may be downplaying concerns about potential issues with the Gray Oak pipeline. Additionally, they may lack confidence in their ability to operate the Red Oak pipeline and to improve petrochemical feedstocks and higher-octane gasoline production at the Sweeny refinery. Finally, they may lack confidence in their ability to sustain export rates in frac, and may be concerned about the sustainability of yields on their primary products.
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
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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