On Monday, Mizuho (NYSE:MFG) Securities adjusted its financial outlook for Phillips 66 (NYSE:NYSE:PSX), reducing the company's price target from $147.00 to $140.00 while maintaining a Neutral stock rating. Currently trading at $113.93, the stock sits near its 52-week low of $108.91, with analyst targets ranging from $115 to $161.
According to InvestingPro data, the stock appears undervalued based on its Fair Value analysis. The revision comes as Mizuho forecasts Phillips 66 to fall short of current consensus expectations for the fourth quarter of 2024, with anticipated misses in EBITDA by 28%, free cash flow (FCF) by 106%, and earnings per share (EPS) by 176%.
The analysis by Mizuho indicates that despite general industry consensus suggesting satisfactory refining demand fundamentals, the global supply needs further rationalization, and crack spreads continue to show weakness. This scenario is expected to have a considerable negative effect on short-term earnings for companies in the sector.
Specifically for Phillips 66, the company's refining segment is predicted to face challenges, exacerbated by weaker performance in its Chemicals and Marketing & Specialties divisions during the fourth quarter. However, the Midstream segment is projected to remain relatively stable, and the Renewable Fuels division is on a trajectory towards achieving profitability.
The research firm's decision to maintain a Neutral rating on Phillips 66 stock reflects the broader macroeconomic trends affecting the refining industry. The company offers a notable 4.04% dividend yield and trades at a P/E ratio of 14.32x. Mizuho's adjusted price target is based on a net asset value (NAV) approach, taking into account fine-tuned short-term assumptions and recent business transactions made by the company.
The revised target aims to align with the anticipated impact of these factors on Phillips 66's financial performance. For deeper insights into Phillips 66's valuation and future prospects, access the comprehensive Pro Research Report available exclusively on InvestingPro.
In other recent news, EPIC Y-Grade has sold its natural gas liquids (NGL) operations to Phillips 66 for a total cash consideration of $2.2 billion. This strategic acquisition includes long-haul NGL pipelines and fractionation facilities, which support the Permian and Eagle Ford (NYSE:F) basins. Financial advisory for the transaction was provided by Jeffries LLC, and legal counsel was offered by Kirkland & Ellis LLP.
In another significant development, Phillips 66 has announced a capital budget of $2.1 billion for 2025, with a focus on sustaining and growth capital. The company has also reported strong financial performance in its Q3 2024 earnings call, with adjusted earnings of $859 million and an operating cash flow of $1.1 billion.
Furthermore, the company plans to shut down its Los Angeles refinery by Q4 2025 due to local crude production declines and regulatory pressures. Phillips 66 is also on track to achieve $3 billion in asset sales and projects a mid-cycle earnings capacity of $14 billion by 2025. Analysts from InvestingPro have noted that despite some bearish highlights, the company remains committed to returning 50% or more of operating cash flow to shareholders by 2025.
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