Stock Analysis on Net

Phillips 66 (NYSE:PSX)

This company has been moved to the archive! The financial data has not been updated since February 21, 2020.

Dividend Discount Model (DDM) 

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.


Intrinsic Stock Value (Valuation Summary)

Phillips 66, dividends per share (DPS) forecast

US$

Microsoft Excel
Year Value DPSt or Terminal value (TVt) Calculation Present value at 14.52%
0 DPS01 3.50
1 DPS1 3.82 = 3.50 × (1 + 9.12%) 3.34
2 DPS2 4.18 = 3.82 × (1 + 9.39%) 3.19
3 DPS3 4.58 = 4.18 × (1 + 9.66%) 3.05
4 DPS4 5.04 = 4.58 × (1 + 9.93%) 2.93
5 DPS5 5.55 = 5.04 × (1 + 10.20%) 2.82
5 Terminal value (TV5) 141.52 = 5.55 × (1 + 10.20%) ÷ (14.52%10.20%) 71.86
Intrinsic value of Phillips 66 common stock (per share) $87.17
Current share price $89.25

Based on: 10-K (reporting date: 2019-12-31).

1 DPS0 = Sum of the last year dividends per share of Phillips 66 common stock. See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Required Rate of Return (r)

Microsoft Excel
Assumptions
Rate of return on LT Treasury Composite1 RF 4.53%
Expected rate of return on market portfolio2 E(RM) 13.63%
Systematic risk of Phillips 66 common stock βPSX 1.10
 
Required rate of return on Phillips 66 common stock3 rPSX 14.52%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rPSX = RF + βPSX [E(RM) – RF]
= 4.53% + 1.10 [13.63%4.53%]
= 14.52%


Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

Phillips 66, PRAT model

Microsoft Excel
Average Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Selected Financial Data (US$ in millions)
Dividends paid on common stock 1,570 1,436 1,395 1,282 1,172
Net income attributable to Phillips 66 3,076 5,595 5,106 1,555 4,227
Sales and other operating revenues 107,293 111,461 102,354 84,279 98,975
Total assets 58,720 54,302 54,371 51,653 48,580
Stockholders’ equity 24,910 24,653 25,085 22,390 23,100
Financial Ratios
Retention rate1 0.49 0.74 0.73 0.18 0.72
Profit margin2 2.87% 5.02% 4.99% 1.85% 4.27%
Asset turnover3 1.83 2.05 1.88 1.63 2.04
Financial leverage4 2.36 2.20 2.17 2.31 2.10
Averages
Retention rate 0.57
Profit margin 3.80%
Asset turnover 1.89
Financial leverage 2.23
 
Dividend growth rate (g)5 9.12%

Based on: 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).

2019 Calculations

1 Retention rate = (Net income attributable to Phillips 66 – Dividends paid on common stock) ÷ Net income attributable to Phillips 66
= (3,0761,570) ÷ 3,076
= 0.49

2 Profit margin = 100 × Net income attributable to Phillips 66 ÷ Sales and other operating revenues
= 100 × 3,076 ÷ 107,293
= 2.87%

3 Asset turnover = Sales and other operating revenues ÷ Total assets
= 107,293 ÷ 58,720
= 1.83

4 Financial leverage = Total assets ÷ Stockholders’ equity
= 58,720 ÷ 24,910
= 2.36

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.57 × 3.80% × 1.89 × 2.23
= 9.12%


Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × ($89.25 × 14.52%$3.50) ÷ ($89.25 + $3.50)
= 10.20%

where:
P0 = current price of share of Phillips 66 common stock
D0 = the last year dividends per share of Phillips 66 common stock
r = required rate of return on Phillips 66 common stock


Dividend growth rate (g) forecast

Phillips 66, H-model

Microsoft Excel
Year Value gt
1 g1 9.12%
2 g2 9.39%
3 g3 9.66%
4 g4 9.93%
5 and thereafter g5 10.20%

where:
g1 is implied by PRAT model
g5 is implied by Gordon growth model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 9.12% + (10.20%9.12%) × (2 – 1) ÷ (5 – 1)
= 9.39%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 9.12% + (10.20%9.12%) × (3 – 1) ÷ (5 – 1)
= 9.66%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 9.12% + (10.20%9.12%) × (4 – 1) ÷ (5 – 1)
= 9.93%