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Phillips 66 (NYSE:PSX) is engaged in producing natural gas liquids and petrochemicals. On October 30, 2013, the company reported third quarter earnings of $0.87 per share which missed the consensus of analyst estimates by $0.05. The stock is up 38.36% in the past year excluding dividends (up 40.33% including dividends), and is beating the S&P 500, which has gained 28.08% in the same time frame. I currently hold Phillips 66 in my dividend portfolio as a result of the spin-off from ConocoPhillips (NYSE:COP) and with all this in mind I'd like to take a moment to evaluate the stock on a fundamental, financial, and technical basis to see if it's worth buying some more stock in the company right now.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 12.89, which is inexpensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 11.23 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $6.59 per share and I'd consider the stock inexpensive until about $99. The 1-year PEG ratio (0.78), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is inexpensively priced based on a 1-year EPS growth rate of 16.62%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 16.62%.

Financials

On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 2.11% with a payout ratio of 27% of trailing 12-month earnings (or 26% of free cash flow) while sporting return on assets, equity and investment values of 7.2%, 16.9% and 3.2%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I don't believe the 2.11% yield of this company is good enough for me to take shelter in for the time being.

Technicals

(click to enlarge)

Looking first at the relative strength index chart [RSI] at the top, I see the stock in overbought territory with a value of 75.05. I will look at the moving average convergence-divergence [MACD] chart next and see that the black line is above the red line with the divergence bars increasing in height, indicating the stock has bullish momentum. As for the stock price itself ($73.98), I'm looking at $75.93 to act as resistance and $72.77 to act as support for a risk/reward ratio, which plays out to be -1.64% to 2.64%.

Recent News

  1. Deutsche Bank upgraded Phillips 66 to "buy" from "hold". This was done because the bank has bullish sentiment on refiners due to the oversupply of light sweet crude and the limitation of the crude export ban.
  2. The company expects a 40% capital expense increase next year. This capex program is mostly to expand its midstream and chemicals business.
  3. The company announced a new $2 billion share repurchase program. Personally I believe this to be awesome news as I believe the shares of the stock are really undervalued at the present time. This move can help boost earnings per share in future quarters.

Conclusion

Phillips is inexpensively valued based on future earnings and on growth. The technical situation of how the stock is currently trading is telling me we might be seeing some downward pressure for now as it is in overbought territory, but it can remain that way for quite some time before selling off. The overbought technicals, low dividend yield, and increased capex spending are what I don't like about the company for the immediate future, and personally I'm not going to be buying right now. Right now I'm positive on my position (+80%) and I will continue to hold onto the shares I have, reinvesting the dividends.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Source: Phillips 66 Has Great Dividend Growth Potential But I'm Not Buying Right Now