Phillips 66 (PSX)

Conclusion

Phillips 66 is an integrated downstream energy company in the United States, the United Kingdom and Germany, with segments in midstream, chemicals, refining, marketing and specialties, and renewable fuels. On 2026-11-09 the share price was 253.02 USD, giving a market capitalisation of 98.7 billion USD.

The verdict is undervalued. Today's P/E of 7.8x compares with a ten-year median of 13.2x, EV/EBITDA of 5.7x with 8.8x, and price to free cash flow of 6.9x with 23.3x. Price to sales (0.58x) and price to book (2.87x) sit above their medians of 0.43x and 1.93x. The DCF gives 663.03 USD per share at a discount rate of 8.87%, and the fair value from historical multiples is 406.34 USD. The fair value band runs from 427.75 to 641.63 USD with a midpoint of 534.69 USD, a margin of safety of 111.3%. The reverse DCF implies growth of -9.1% a year, while revenue grew 15.7% a year over five years but fell 8.1% a year over three.

What holds the case up is ROIC of 30.1% against a WACC of 8.3%, free cash flow conversion of 114.1% on a trailing basis, and an Altman Z-score of 4.571. What would break it is earnings: EPS has fallen 22.6% a year over three years, the next-year EPS estimate points to -7.1%, and the price already stands above the historical median on price to book.

Financial health

Financial strength is green, held up by an Altman Z-score of 4.571, net debt to EBITDA of 0.651, interest coverage of 14.877 and a current ratio of 1.344. The quick ratio is 0.9184 and debt to equity is 0.5397, both acceptable. The Altman model was designed for manufacturers, and the company is closest to that profile, so the zone of 4.571 is read as safe. Insolvency risk: low, about 0.3% by the estimate of the Ohlson model over one to two years. Debt has shrunk 8.5% a year over five years, so leverage is falling rather than rising.

Earnings quality

Earnings quality is green, supported by a Piotroski score of 7 out of 9 and a Beneish M-score of -2.74, which is read as unlikely to signal manipulation. Free cash flow conversion is 114.1% on a trailing basis and 86.8% over five years. The accrual ratio is -0.76%, meaning cash earnings run ahead of reported earnings. The share count fell 1.5% a year over five years, so buybacks are reducing dilution. Free cash flow after stock-based compensation is 14.35 billion USD, but the stock-based compensation figure itself is not available. The company beat earnings estimates in seven of the last eight quarters, with an average surprise of 42.9%. Analysts have raised the current-year estimate over the last 90 days by 36.2%, and the next-year estimate by 62.1%, although next-year EPS growth is still expected at -7.1%.

Profitability

Profitability is green. The gross margin of 12.4% is well above its ten-year median of 4.9%, the operating margin of 9.3% sits against a median of 2.5%, and the net margin of 7.4% against 3.1%. Operating margin stability is 92.3%. ROIC of 30.1% against a WACC of 8.3% creates value, with a ROIC-minus-WACC value of 21.8%, and the five-year median ROIC is 10.6%. Return on equity of 36.6% is flattered by leverage. The DuPont split shows a net margin of 3.3%, an asset turnover of 1.79x and an equity multiplier of 2.53x, so the return comes mostly from asset efficiency and borrowing, not from margin alone.

Growth

Growth is red. Revenue has a compound annual growth rate of -8.1% over three years, 15.7% over five and 4.5% over ten. Revenue grew in only 4 of the last 10 comparable years. Earnings per share fell 22.6% a year over three years, and grew 3.4% a year over ten. Free cash flow per share fell 28.4% a year over three years. The recent contraction has been steep, while the longer record is mixed and the five-year figure is strong, so the three-year decline dominates the colour.

Valuation

Valuation is green, with the verdict undervalued. Against their ten-year medians, the P/E is 40.4% below, EV/EBITDA 34.9% below and price to free cash flow 70.5% below, while price to sales is 35.9% above and price to book 49.2% above. The DCF gives 663.03 USD per share at a discount rate of 8.87%, and the fair value from historical multiples is 406.34 USD. The fair value band runs from 427.75 to 641.63 USD, a rough order of magnitude built on fixed model assumptions, not a price target. The reverse DCF implies growth of -9.1% against revenue growth of 15.7% over five years, a gap of -24.8% as given. The dividend yield is 2.03%, and the dividend absorbs 14.0% of free cash flow.

Risks

The main risk is that earnings keep shrinking: three-year EPS growth of -22.6% and the next-year estimate of -7.1% would weaken the cash generation behind the valuation, and the reverse DCF already implies a contraction. Revenue growth over three years of -8.1% points the same way. A sharp fall in refining or chemicals margins would hit ROIC, currently 30.1%, and the 8.3% WACC would then be harder to clear. The stock-based compensation figure is not available, so its dilution effect cannot be fully measured. The analysis has no debt maturity schedule and no revenue split by segment, so it cannot test which business drives the decline. The DCF depends on fixed assumptions, and a different discount rate or growth path would move the 663.03 USD result substantially.