On Apr 2, Zacks Investment Research downgraded largest U.S.
) to a Zacks Rank #3 (Hold).
Why the Downgrade?
Houston, TX based Phillips 66 is an independent publicly traded
company, was formed after the spin-off of the refining/sales
) in May 2012. The move resulted in the creation of the largest
refining company in the U.S. and the biggest exploration and
production player based on oil and gas reserves.
In addition to the refining, marketing and transportation
businesses, the company has emerged as an integrated downstream
company with most of the Midstream and Chemicals segments, as
well as power generation and certain technology operations
included in the Emerging Businesses segment.
Being a buyer of crude, the company's profitability might be
affected by the increase in
. As a result, with the commodity's price hovering around $100
per barrel, we expect Phillips 66's margins to be negatively
impacted due to a rise in the cost of crude.
Phillips 66, one the largest independent oil refiners in the
U.S., has easy access to the West Texas Intermediate (WTI) crude.
WTI is light and of very high quality. As the major portion of
the company's refining capacity uses light/sweet crude oil as
feedstock, the company is unable to take advantage of the
attractive crude quality spreads, which is the price differential
between the low-cost heavy/sour and the higher-priced light/sweet
grades of crude oil.
Over the past one month, the company has seen a negative trend in
earnings estimate revision. For the first quarter of 2014, two
estimates moved down in the past 30 days, with no upward
revision. For the full year, two estimates moved down while only
one estimate was revised upward.
Stocks That Warrant a Look
While we expect Phillips 66 to perform in line with its
peers and industry levels in the coming months and advice
investors to wait for a better entry point before accumulating
shares, one can look at
World Point Terminals, LP
) as good buying opportunities. These oil and gas players -
sporting a Zacks Rank #1 (Strong Buy) - have solid secular growth
stories with the potential to rise significantly from current
CONOCOPHILLIPS (COP): Free Stock Analysis
PHILLIPS 66 (PSX): Free Stock Analysis Report
UNIT CORP (UNT): Free Stock Analysis Report
WORLD POINT TER (WPT): Free Stock Analysis
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