PSX

We rate Phillips 66 (PSX) as a Reduce with a composite score of 48.9/100 at a current price of $154.36. The quantitative profile shows weakness across multiple dimensions, suggesting limited upside potential and elevated risk of underperformance relative to peers over the next 12 months.

The rating is primarily driven by strength in stability (72th percentile) and quality (46th percentile), which together account for the majority of the composite score. Offsetting weakness in momentum (34th percentile) and value (43th percentile) tempers our overall conviction. We assign a No Moat rating (19/100), Medium uncertainty, and Poor capital allocation.

Key items to watch: momentum to confirm whether the current price trend has legs; balance sheet deleveraging progress. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

Phillips 66 holds a top-quartile position (#0 of 50) within the Mining sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 48.9/100 places it at rank #2185 in our full 7,333-stock universe. With a $55.0B market capitalization, Phillips 66 operates at meaningful scale within the Mining sector, providing competitive advantages in distribution, procurement, and customer reach.

Revenue contraction of -8% combined with momentum at the 34th percentile paints a cautious picture of the near-term business outlook. The market appears to be pricing in continued challenges, and a catalyst for reversal is not clearly visible from current data.

The margin cascade tells an important story: gross margins of 11% (-32.0pp vs sector) narrow to operating margins of 1% (-10.9pp vs sector) and net margins of 1.5%, yielding a gross-to-net conversion rate of 13%. The significant margin erosion from gross to net suggests elevated operating expenses, high interest costs, or other structural drags that warrant monitoring.

At a current price of $154.36, Phillips 66 is trading near fair value based on current fundamentals. Our value factor score of 43/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. Valuation metrics are mixed, with no strong signal of mispricing in either direction.

The stock currently trades at a P/E of 31.9x (a 132% premium to the sector median of 13.7x), EV/EBITDA of 48.9x (at a premium), P/B of 2.1x, P/S of 0.5x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis finds only partially justified by current fundamentals.

We assign a Medium uncertainty rating to Phillips 66. The stock presents a balanced risk profile: significant leverage (144% debt-to-equity) and the combination of leverage (144% D/E) and thin margins (1.5% net) amplifies downside risk. While not risk-free, the core business fundamentals are adequate to withstand moderate economic stress, and the range of potential outcomes around our fair value estimate is manageable.

Specific risk factors that inform our assessment include: significant leverage (144% debt-to-equity); the combination of leverage (144% D/E) and thin margins (1.5% net) amplifies downside risk. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 72th percentile and quality factor at the 46th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: above-average stability (72th percentile) suggests predictable business dynamics; large-cap scale ($55.0B) provides resilience; a 3.46% dividend yield anchors total return. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate Phillips 66's capital allocation as Poor. Key concerns include suboptimal returns on capital. Exemplary capital allocators generate ROE above 20% and maintain conservative leverage — Phillips 66 significantly underperforms these benchmarks, raising questions about management's ability to create shareholder value.

Investors should scrutinize management's reinvestment decisions and balance sheet trajectory before committing capital. Poor capital allocation often compounds over time: overlevered balance sheets limit strategic flexibility, while low returns on capital destroy shareholder value. We would need to see sustained improvement in profitability metrics and balance sheet discipline before considering an upgrade.

In summary, Phillips 66 receives a Reduce rating with a composite score of 48.9/100 (rank #2185 of 7,333). Our quantitative framework assigns a No Moat (19/100, trend: stable), Medium uncertainty, and Poor capital allocation. The average factor score across quality, value, momentum, stability, and investment is 48/100.

Our analysis does not support a constructive view on Phillips 66 at this time. The combination of limited competitive advantages, medium uncertainty, and poor capital allocation suggests unfavorable risk-reward at current levels. We recommend investors avoid new positions and existing holders consider reducing exposure.