What happened

Shares of Phillips 66 (NYSE:PSX) tumbled along with the rest of the stock market last month, sliding by more than 10%. That sell-off came even though the oil refiner posted strong fourth-quarter results and took advantage of the drop in its stock price to buy back a big chunk of its shares from Warren Buffett's Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B).

So what

Phillips 66 reported its fourth-quarter and year-end results in early February. The company hauled in an impressive $548 million, or $1.07 per share in adjusted earnings, which beat the consensus estimate by $0.21 per share. Fueling the company's strong quarter was its midstream business, which generated $142 million of adjusted net income, 43% higher than the third quarter, led by the excellent performance of its master limited partnerships Phillips 66 Partners (NYSE:PSXP) and DCP Midstream (NYSE:DCP). In Phillip 66 Partners' case, it posted a 60% earnings increase after completing its largest acquisition to date, as well as benefiting from rising volumes on its legacy assets, while DCP Midstream's earnings rose 11% thanks to higher natural gas liquids pricing and improved volumes.

A refinery at twilight with a colorful sky above it

Image source: Getty Images.

That strong quarter enabled Phillips 66 to generate $1.9 billion in cash from operations, pushing its full-year total to $3.6 billion. In addition, the company closed the sale of $2.4 billion in assets to Phillips 66 Partners, providing it with a huge cash pile to allocate on behalf of shareholders. The company put that money to work last month by agreeing to repurchase $3.3 billion in stock from Berkshire Hathaway. In his comments about the stock sale, Warren Buffett said:

Phillips 66 is a great company with a diversified downstream portfolio and a strong management team. This transaction was solely motivated by our desire to eliminate the regulatory requirements that come with ownership levels above 10%. We remain one of Phillips 66's largest shareholders and plan to continue to hold the stock for the long term. 

That said, in spite of that vote of confidence, not to mention the strong quarter and the buyback, Phillips 66's stock price fell with the rest of the market last month, which unexpectedly sold off sharply on interest rate fears.

Now what

The surprising market-driven decline in Phillips 66's stock last month looks like a great buying opportunity. Not only do shares seem reasonably priced at less than 10 times earnings, but Phillips 66 should produce even more cash flow this year due to the recent and upcoming completion of expansion projects at Phillips 66 Partners, DCP Midstream, and its chemicals joint venture, CPChem. That rising free cash flow should enable the company to return more money to investors in the coming years via additional stock repurchases and higher dividends. Given that those dual fuels have helped the company produce a more than 225% total return since it gained its independence in 2012, they could potentially continue to result in strong gains in the coming years.

Matthew DiLallo owns shares of Berkshire Hathaway (B shares) and Phillips 66. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.