Are These 3 Billionaires Right About Phillips 66 (PSX)?

Growth Prospects

The bulk of Phillips 66’s capital expenditures in 2015 are going to fund midstream growth. The image below breaks down expected fiscal 2015 capital expenditures:

The Sweeney Fractionator project was started in 2013 and is expected to be complete in the 3rd quarter of 2015. The fractionator is located in Old Ocean, Texas near Phillips 66’s refineries. It will be able to process 100,000 barrels per day. The products of the fractionator will be marketed to nearby petrochemical businesses, as well as for international exports.

Phillips 66 is also building an LPG export terminal in Freeport, Texas. The LPG export terminal will leverage the company’s transportation and storage infrastructure in the area. In total, the export terminal is expected to handle 4.4 million barrels a month of export capacity. The export facility is expected to be operational in mid-2016.

These two large projects combined with organic growth and share repurchases should continue to provide positive earnings growth for Phillips 66. All told, the company is expected to compound earnings-per-share at around 5% a year. I believe the company has a chance to exceed this growth rate due to the company’s management’s excellent capital allocation skills.

Final Thoughts

Phillips 66 (NYSE:PSX) has a solid dividend yield of 2.7% and expected earnings-per-share growth of 5%+. The company has a very shareholder friendly management as well.

Best of all, the company has a low price-to-earnings ratio of just 11.8. Phillips 66 combination of decent growth, above-average dividends, and low valuation gives it a high rank using The 8 Rules of Dividend Investing.

Phillips 66 is not a value trap. The company is an undervalued downstream oil and gas giant with a shareholder friendly management that will very likely reward shareholders with continued dividend growth and share repurchases.

Disclosure: None