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Phillips 66's Q3 Earnings on Deck: Should You Bet on the Stock?
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Key Takeaways
Phillips 66's Q3 earnings are expected to jump nearly 377% y/y despite a projected 3.6% revenue dip.
High refining utilization and strong crack spreads may offset rising crude costs and support Q3 profits.
PSX's diversified business offers stability, but its 12.52x EV/EBITDA exceeds the industry's 6.36x average.
Phillips 66 (PSX - Free Report) is set to report third-quarter 2026 results on Oct. 28, before the opening bell.
The Zacks Consensus Estimate for third-quarter earnings is pegged at $12.02 per share, implying an improvement of almost 377% from the year-ago reported number. It has witnessed one upward estimate revision in the past seven days. The Zacks Consensus Estimate for third-quarter revenues is currently pegged at $33.7 billion, suggesting a decline of 3.6% from the year-ago actuals.
Image Source: Zacks Investment Research
PSX beat the consensus estimate for earnings in each of the trailing four quarters, with the average surprise being 62.6%. This is depicted in the graph below:
Q3 Earnings Whispers for PSX
Our proven model doesn’t predict an earnings beat for PSX this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy), or 3 (Hold) increases the chances of an earnings beat. That isn’t the case here.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
PSX’s Factors to Note
To understand how oil prices behaved in the September quarter, let's analyze the commodity prices from the data provided by the U.S. Energy Information Administration (“EIA”). The average Cushing, OK, WTI spot prices for July, August and September of this year were $80.46 per barrel, $83.90 per barrel and $97.31 per barrel, respectively, per EIA data. Commodity prices were $68.39 per barrel, $64.86 per barrel and $63.96 per barrel in the prior-year, respective quarters, according to the EIA.
A constructive oil-price backdrop, driven by the Iran war, is likely to have hurt the refining business of Phillips 66 in the third quarter, since the input costs to produce final products like gasoline, diesel fuel and others were higher. A similar dynamic is likely to have affected Par Pacific Holdings, Inc. (PARR - Free Report) and Valero Energy Corporation (VLO - Free Report) , belonging to the same space.
However, the high utilization of refineries in the United States to meet resilient demand is likely to have largely offset the negative impacts of high input costs.
PSX’s Price Performance & Valuation
PSX's stock has surged 110.8% over the past year, underperforming the industry’s 132.9% growth. PARR has jumped 100.8% over the same time frame, while VLO has gained 149.2%.
One-Year Price Chart
Image Source: Zacks Investment Research
Despite PSX’s stock price underperforming the industry, the company appears relatively overvalued. The company's current trailing 12-month enterprise value/earnings before interest, tax, depreciation and amortization (EV/EBITDA) is 12.52x, reflecting that it is trading at a premium compared with the industry average of 6.36x. VLO and PARR are valued lower at 9.00x and 3.37x, respectively.
Image Source: Zacks Investment Research
Investment Thesis of PSX
PSX noted that there aren’t enough refineries or products globally right now because much refining capacity is offline and fuel inventories are low. This shortage helps keep refining margins, also called crack spreads, high. Management believes these shortages may take longer to resolve than in 2022, which is expected to boost the energy major’s refining profits in the September quarter and in 2027. The broader scenario is also likely to favor other refiners like VLO and PARR.
Although a leading refiner, PSX, unlike most of its refining peers, has diversified into midstream and chemicals. Along with investing in refining operations, Phillips 66 is allocating significant capital to midstream.
The midstream business, by its very definition, is stable since the company generates stable cash flows as the assets are being utilized for the long term and is less vulnerable to commodity price volatility. Hence, having a diversified business model, PSX is insulated from commodity price volatility to a great extent.
Last Word
Given its relatively stable business model, it might be the ideal time for investors to bet on the stock. In fact, investors are willing to pay a premium for this stock as reflected in the valuation picture.
View the Zacks #1 Rank List
Image: Bigstock
Phillips 66's Q3 Earnings on Deck: Should You Bet on the Stock?
Key Takeaways
Phillips 66 (PSX - Free Report) is set to report third-quarter 2026 results on Oct. 28, before the opening bell.
The Zacks Consensus Estimate for third-quarter earnings is pegged at $12.02 per share, implying an improvement of almost 377% from the year-ago reported number. It has witnessed one upward estimate revision in the past seven days. The Zacks Consensus Estimate for third-quarter revenues is currently pegged at $33.7 billion, suggesting a decline of 3.6% from the year-ago actuals.
PSX beat the consensus estimate for earnings in each of the trailing four quarters, with the average surprise being 62.6%. This is depicted in the graph below:
Q3 Earnings Whispers for PSX
Our proven model doesn’t predict an earnings beat for PSX this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy), or 3 (Hold) increases the chances of an earnings beat. That isn’t the case here.
The leading refining player has an Earnings ESP of 0.00%. PSX currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
PSX’s Factors to Note
To understand how oil prices behaved in the September quarter, let's analyze the commodity prices from the data provided by the U.S. Energy Information Administration (“EIA”). The average Cushing, OK, WTI spot prices for July, August and September of this year were $80.46 per barrel, $83.90 per barrel and $97.31 per barrel, respectively, per EIA data. Commodity prices were $68.39 per barrel, $64.86 per barrel and $63.96 per barrel in the prior-year, respective quarters, according to the EIA.
A constructive oil-price backdrop, driven by the Iran war, is likely to have hurt the refining business of Phillips 66 in the third quarter, since the input costs to produce final products like gasoline, diesel fuel and others were higher. A similar dynamic is likely to have affected Par Pacific Holdings, Inc. (PARR - Free Report) and Valero Energy Corporation (VLO - Free Report) , belonging to the same space.
However, the high utilization of refineries in the United States to meet resilient demand is likely to have largely offset the negative impacts of high input costs.
PSX’s Price Performance & Valuation
PSX's stock has surged 110.8% over the past year, underperforming the industry’s 132.9% growth. PARR has jumped 100.8% over the same time frame, while VLO has gained 149.2%.
One-Year Price Chart
Despite PSX’s stock price underperforming the industry, the company appears relatively overvalued. The company's current trailing 12-month enterprise value/earnings before interest, tax, depreciation and amortization (EV/EBITDA) is 12.52x, reflecting that it is trading at a premium compared with the industry average of 6.36x. VLO and PARR are valued lower at 9.00x and 3.37x, respectively.
Investment Thesis of PSX
PSX noted that there aren’t enough refineries or products globally right now because much refining capacity is offline and fuel inventories are low. This shortage helps keep refining margins, also called crack spreads, high. Management believes these shortages may take longer to resolve than in 2022, which is expected to boost the energy major’s refining profits in the September quarter and in 2027. The broader scenario is also likely to favor other refiners like VLO and PARR.
Although a leading refiner, PSX, unlike most of its refining peers, has diversified into midstream and chemicals. Along with investing in refining operations, Phillips 66 is allocating significant capital to midstream.
The midstream business, by its very definition, is stable since the company generates stable cash flows as the assets are being utilized for the long term and is less vulnerable to commodity price volatility. Hence, having a diversified business model, PSX is insulated from commodity price volatility to a great extent.
Last Word
Given its relatively stable business model, it might be the ideal time for investors to bet on the stock. In fact, investors are willing to pay a premium for this stock as reflected in the valuation picture.