A major uptick in stock prices brought along an insider buying uptick, maybe a sign of good things to come. While there were a few transactions worthy of consideration, Phillips 66 (PSX) gave us $1 million reasons to put it to the top of our list.
Phillips 66 operates as an energy manufacturing and logistics company. It operates through four segments: Midstream, Chemicals, Refining, and Marketing and Specialties (M&S).
1) The Midstream segment transports crude oil and other feedstocks; delivers refined petroleum products to market; provides terminaling and storage services for crude oil and refined petroleum products; transports, stores, fractionates, exports, and markets natural gas liquids; provides other fee-based processing services; and gathers, processes, transports, and markets natural gas.
2) The Chemicals segment produces and markets ethylene and other olefin products; aromatics and styrenics products, such as benzene, cyclohexane, styrene, and polystyrene; and various specialty chemical products, including organosulfur chemicals, solvents, catalysts, and chemicals used in drilling and mining.
3) The Refining segment refines crude oil and other feedstocks into petroleum products, such as gasolines, distillates, aviation, and renewable fuels at 12 refineries in the United States and Europe.
4) The M&S segment purchases for resale and markets refined petroleum products, including gasolines, distillates, and aviation fuels primarily in the United States and Europe. This segment also manufactures and markets specialty products, such as base oils and lubricants.
PSX Director Gregory Hayes purchased 10,250 shares are $97.75 per share, investing $1,001,938. (1) It is Hayes first foray into the energy company, but his history is primarily a seller; his most recent roundtrip trade (buying-selling) and dollar amount is noteworthy.
Hayes is relatively inactive by insider standard with just seven transactions since November 2019, five sells and two buys. Overall, Hayes collected $25.961 million while doling out north of $4 million. He started with four straight sales of United Technologies (UTX) for about $25.5 million.
It’s the roundtrip trade of Raytheon Technologies Corporation (RTX) that hints at the Director’s potential to be on the right side of the trade. He bought 55,000 shares at $54.82 in October 2020. Hayes sold 4,260 of those shares at $99.16, an 80 percent gain in a little more than a year.
Perhaps, Hayes sees a rebound in oil prices while many believe black gold’s price will fall through 2023 and 2024. The US Energy Information Administration says, “We forecast that the Brent crude oil price will average $83 per barrel (b) in 2023, down 18% from 2022, and continue to fall to $78/b in 2024 as global oil inventories build, putting downward pressure on crude oil prices.” (2)
PRICE, SALES & EARNINGS TARGETS
As we type, PSX trades at $97.85 with a one-year price target of $124.31. (2) With oil prices down and forecasted to go lower, Wall Street sees Phillips 66’s earnings falling from $14.87 per share this year to $12.66 in 2024. Revenue is slated to dip as well to $136.25 billion next year from $144.19 billion in 2023. (3)
Since the Oil & Gas Refining & Marketing company’s top and bottom are expected to be under pressure for the next couple of years, we’ll use conservative valuation metrics to calculate potential price points based on 2024’s earnings and sales expectations.
For the past five years, PSX traded at an average of 14.18 times earnings per share (EPS) with a low price to earnings ratio (P/E) of 0.14. For the topline, the company’s average price to sales (P/S) ratio was 0.38 and bottomed at 0.19.
If PSX hits analysts’ 2024 EPS target of $12.66, we derive the following potential price points based on P/E:
- Low P/E: $58.49
- Average P/E: $179.52
Now, using 2024’s revenue target of $136.25 billion and recent P/S history:
- Low P/S: $55.55
- Average P/S: $111.11 (odd pairing of price targets with all 1s or 5s, numerologists will have a field day)
Phillips 66 (PSX) would likely offer Director Hayes and new shareholders plenty of upside if oil’s price defies predictions for 2023-2024 and rises. If, however, the experts have made the correct call on oil’s direction, then PSX could struggle to make gains from today’s price level and could back up. Fortunately, the oil company pays an annual dividend of $3.83 (3.96% yield) in case it takes more than two years for oil to rebound.
PSX is appropriate for investors with above average risk tolerance and a time horizon of at least two years.
1 – https://www.secform4.com/insider-trading/1225946.htm
2 – https://www.eia.gov/outlooks/steo/
3 – https://finance.yahoo.com/quote/PSX?p=PSX&.tsrc=fin-srch