What happened
Phillips 66 (PSX -2.51%) stock popped today and was trading up 5.3% as of noon Tuesday. Oil prices jumped on Tuesday, but that's not the only factor that provided the impetus for shares of Phillips 66.
So what
Oil and gas refiners are hot on analysts' radar right now. This morning, Roger Read from Wells Fargo upped Phillips 66 stock's price target to $127 per share from $114 a share, backed by strong earnings expectations from the refining-giant's second quarter.
This upgrade comes just one day after BMO Capital analyst Phillip Jungwirth initiated coverage on Phillips 66 stock with an outperform rating and a price target of $132 a share. Jungwirth noted how Phillips 66 stock has lagged its peers, and put forth a bull case for the refiner. Among other things, the analyst sees the company benefiting from strong diesel prices and a wider differential between crude prices, WCS (Western Canadian Select), and WTI (West Texas Intermediate).
Wells Fargo's and BMO Capital's price targets for Phillips 66 stock are among the highest within the analyst community. The oil stock is currently trading at around $105 per share, as of this writing.
Now what
Phillips 66 is an integrated oil and gas giant with midstream, refining, chemicals, and marketing operations. As one may guess, while its midstream business is less prone to fluctuations in prices of fossil fuels, rising oil prices is a major headwind for the company's refining business that converts crude oil into end-use products like gasoline and aviation fuel.
Yet gasoline prices have rallied more than crude and shot past $5 per gallon to all-time highs. That means larger crack spreads, or refining margins, for refiners like Phillips 66. The company plans to use incremental cash flows to not just pare debt but also resume share repurchases and increase dividends going forward.
Investors who bought Phillips 66 stock today are simply betting on skyrocketing diesel and gasoline prices.
