Will Phillips 66 See Higher Prices?

With shares of Phillips 66 (NYSE:PSX) trading around $60, is PSX an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Phillips 66 operates as an independent downstream energy company. The company operates in three segments: Refining and Marketing, Midstream, and Chemicals. The Refining and Marketing segment purchases, refines, markets and transports crude oil and petroleum products, mainly in the United States, Europe and Asia, and also engages in power generation activities. The Midstream segment gathers, processes, transports and markets natural gas, predominantly in the United States. The Chemicals segment manufactures and markets petrochemicals and plastics on a worldwide basis. Through its segments, Phillips 66 is able t provide essential energy products to consumers and businesses around the world.

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T = Technicals on the Stock Chart are Mixed

Since its initial public offering last year, Phillips 66 has seen a beautiful uptrend that has doubled its stock price. Along with many energy companies, the stock has been seeing some selling in recent months. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Phillips 66 is trading around its rising key averages which signal neutral price action in the near-term.

PSX

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Phillips 66 options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Phillips 66 Options

40.64%

80%

83%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

May Options

Steep

Average

June Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion…

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Phillips 66′s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Phillips 66 look like and more importantly, how did the markets like these numbers?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

-33.44%

52.12%

13.41%

N/A

Revenue Growth (Y-O-Y)

-11.46%

-14.34%

-10.48%

N/A

Earnings Reaction

1.46%

-0.25%

1.78%

N/A

Phillips 66 has seen mixed earnings and revenue figures over the last three quarters. From these figures, the markets have been a little confused with Phillips 66′s recent earnings announcements.

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P = Average Relative Performance Versus Peers and Sector

How has Phillips 66 stock done relative to its peers, Marathon Petroleum (NYSE:MPC), Valero Energy (NYSE:VLO), Chevron (NYSE:CVX), and sector?

Phillips 66

Marathon Petroleum

Valero Energy

Chevron

Sector

Year-to-Date Return

12.41%

27.48%

17.23%

8.24%

7.19%

Phillips 66 has been an average performer, year-to-date.

Conclusion

Phillips 66 provides vital energy products to consumers and businesses that operate locally, nationally, and worldwide. The stock has been an excellent long-term performer but has seen a bit of selling pressure in recent times. Earnings and revenue figures have only instilled unease in investors. Relative to its peers and sector, Phillips 66 has been an average year-to-date performer in a strong sector. WAIT AND SEE what Phillips 66 does this coming quarter.

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