As New Year's Eve quickly approaches, and we all prepare to make our 2013 investing resolutions, it is a good time to reflect on the energy sector in year that was 2012. In this December series, our writers will be recapping some of the most popular, highest-performing stocks in this sector. We will examine whether the gains these companies provided their shareholders in 2012 are sustainable, or whether they merely can be attributed to one-time events or fizzling trends. Consider these pieces as gifts to benefit our Foolish, long-term investors seeking exposure to the energy sector. Today we're going to look at Phillips 66 (PSX 1.51%), which as of this writings is up 57.4%.
How it's done in comparison to its peers:
|
Company |
Profit Margin |
Return on Assets |
Debt-toEquity |
P/E |
|---|---|---|---|---|
|
Phillips 66 |
3.19% |
4.26% |
38.72 |
8.61 |
|
Valero Energy (VLO 1.23%) |
0.81% |
5.29% |
40.54 |
6.86 |
|
Tesoro (ANDV) |
1.85% |
6.89% |
33.72 |
7.07 |
|
Enterprise Products Partners (EPD 0.56%) |
5.86% |
5.80% |
123.66 |
18.54 |
|
Holly Frontier (HFC) |
7.83% |
16.11% |
21.23 |
7.53 |
Source: Company 10-Ks
The (half)-year that was 2012 for Phillips 66
While many consumers are familiar with the famous "66" gas stations around the U.S., Phillips 66 as a downstream refining and marketing company was spun off from its former parent ConocoPhillips (COP -0.04%) back on May 1. In the split, Phillips 66 took all oil and chemical refining facilities, 55,000 miles of pipelines (40,000 it shares in a joint venture with Spectra Energy (SE)), and half of the ChevronPhillips Chemical Company, a joint venture with Chevron (CVX 1.20%).
Since that time, Phillips 66 company has soared while its former parent has seen only modest growth.
Just to add a cherry on top for the year. The company got the blessing of Buffet, who purchased over 27 million shares through his investment company Berkshire Hathaway (BRK.B 0.91%) for a $1.1 billion stake in the company.
Is this sustainable?
Phillips 66 couldn't have been spun off at a more opportune time. With ever increasing U.S. supply, the company has had little problem securing cheaper domestic feedstocks for its refining process and turning those supplies around to a still lucrative gasoline market. According to the most recent Oil & Gas Journal, the crack spread spot price on Louisiana light sweet crude and its finished products (the price differential between crude the company buys and the price it sells finished products) is $11.47, up 124% from this time last year.
Thanks to these high crack spreads, the entire refining industry has had a great year. While there is no guarantee that these spreads will remain as high as they are today, the current lack of feedstock transportation (pipelines, rail cars, etc.) will help to keep domestic crude prices low. For the forseeable future, these crack spread levels should remain high. That same Oil & Gas Journal report shows six-month futures contracts on crack spreads to be in the $33 range.
As long as demand for gasoline and petrochemicals remains constant, and crude prices remain low while midstream companies build out their transportation networks, expect refiners like Phillips 66 to remain strong.
