The ABR says Buy on PSX. Refining margins are under pressure. The summer driving season will decide whether the analysts are right.
The average analyst rating on Phillips 66 (PSX) sits at "Buy." That sounds like a green light. The problem with the average brokerage recommendation (ABR) is that it blends every analyst's rating, including those who have not revised their price targets in months. The metric can lag the actual margin cycle the refiner is facing.
Refining margins have been under pressure through the first half. Crack spreads – the difference between crude input and refined product prices – narrowed as global capacity returned online and demand growth softened. Phillips 66 runs 13 refineries in the U.S. and Europe. That exposure showed in first-quarter earnings: adjusted refining profit fell sharply year over year, even with steady throughput.
The bull case leans on the midstream and chemicals segments. The pipeline and NGL logistics business produces fee-based revenue that does not depend on crude price direction. The Chevron Phillips Chemical joint venture has seen better polyethylene margins. Together, those operations still make up a smaller share of total earnings than refining does in a normal margin environment. The stock trades at roughly 11 times forward earnings, a valuation that prices in some recovery but not a prolonged downturn.
The deciding factor will be the summer driving season. Gasoline demand typically peaks in July and August, supporting refining margins. If that seasonal lift arrives, Phillips 66 could see a second-half rebound that validates the ABR. If demand stays soft or new refining capacity in Asia and the Middle East keeps product markets oversupplied, the stock could drift lower as analysts revise estimates.
Management has been active on capital allocation – buying back shares and raising the dividend. That gives the stock a floor in a downcycle. It does not replace the earnings power of healthy margins. The company's Alpha Score of 55 out of 100, rated Mixed, reflects the tension between a solid balance sheet and an uncertain near-term earnings outlook.
Phillips 66 reports its next quarterly earnings in late July. That is the deadline for the seasonal thesis to prove out.
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