Is Phillips 66 Stock a Buy at Elevated Valuation Levels?
Phillips 66 PSX is currently considered expensive on a relative basis, with the stock trading at an 11.75x trailing 12-month Enterprise Value to Earnings Before Interest, Taxes, Depreciation and Amortization (EV/EBITDA), which is a premium compared with the broader industry average of 5.94x. Such a premium valuation often signals strong market confidence in the company’s prospects. Valero Energy Corporation VLO and Par Pacific Holdings PARR, belonging to the same space, are valued at 8.55x and 3.52x, respectively.
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However, this elevated price necessitates a thorough assessment of the company’s fundamentals, growth potential and prevailing market conditions to check if it is justified.
Will PSX’s Refining Margins Remain Strong?
On its second-quarter 2026earnings call PSX noted that there aren’t enough refineries or products globally right now because much refining capacity is offline and fuel inventories are low. China is also exporting less fuel than usual. 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.
PSX’s Resilient Business Model & Debt Reduction Focus
Although a leading refiner, PSX, unlike most of its refining peers, has diversified its business across midstream and chemicals. Along with investing in refining operations, Phillips 66 is allocating significant capital to midstream.
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.
Moreover, debt reduction remains on track, with PSX targeting roughly $17 billion of total debt by 2026-end versus almost $21 billion in the second quarter, while net debt is expected to improve from $16.5 billion to less than $16 billion.
Is the Stock Worth Buying?
In the past year, PSX has jumped 99.1%, underperforming the industry’s 115.7% growth. PARR and VLO have surged 138.4% and 148.6%, respectively, over the same time frame.
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Although PSX underperformed the industry, the stock remains overvalued, reflecting investors' strong preference for the company, supported by solid fundamentals. Earnings estimates for 2026 have been revised higher over the past seven days.
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Hence, investors can bet on the stock, which currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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Free: See Our Top Stock And 4 Runners UpPhillips 66 (PSX) : Free Stock Analysis Report
Valero Energy Corporation (VLO) : Free Stock Analysis Report
Par Pacific Holdings, Inc. (PARR) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
