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.

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

Intrinsic Stock Value (Valuation Summary)

Phillips 66, free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 11.65%
01 FCFF0 1,336
1 FCFF1 1,423 = 1,336 × (1 + 6.47%) 1,274
2 FCFF2 1,524 = 1,423 × (1 + 7.07%) 1,222
3 FCFF3 1,641 = 1,524 × (1 + 7.68%) 1,179
4 FCFF4 1,776 = 1,641 × (1 + 8.28%) 1,143
5 FCFF5 1,934 = 1,776 × (1 + 8.88%) 1,115
5 Terminal value (TV5) 75,862 = 1,934 × (1 + 8.88%) ÷ (11.65%8.88%) 43,721
Intrinsic value of Phillips 66 capital 49,654
Less: Debt (fair value) 13,201
Intrinsic value of Phillips 66 common stock 36,453
 
Intrinsic value of Phillips 66 common stock (per share) $82.95
Current share price $89.25

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

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.


Weighted Average Cost of Capital (WACC)

Phillips 66, cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 39,221 0.75 14.50%
Debt (fair value) 13,201 0.25 3.20% = 4.25% × (1 – 24.78%)

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

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 439,445,842 × $89.25
= $39,220,541,398.50

   Debt (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (20.20% + 20.60% + 28.90% + 25.00% + 29.20%) ÷ 5
= 24.78%

WACC = 11.65%


FCFF Growth Rate (g)

FCFF 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)
Interest and debt expense 458 504 438 338 310
Net income attributable to Phillips 66 3,076 5,595 5,106 1,555 4,227
 
Effective income tax rate (EITR)1 20.20% 20.60% 28.90% 25.00% 29.20%
 
Interest and debt expense, after tax2 365 400 311 254 219
Add: Dividends paid on common stock 1,570 1,436 1,395 1,282 1,172
Interest expense (after tax) and dividends 1,935 1,836 1,706 1,536 1,391
 
EBIT(1 – EITR)3 3,441 5,995 5,417 1,809 4,446
 
Short-term debt 547 67 41 550 44
Long-term debt 11,216 11,093 10,069 9,588 8,843
Stockholders’ equity 24,910 24,653 25,085 22,390 23,100
Total capital 36,673 35,813 35,195 32,528 31,987
Financial Ratios
Retention rate (RR)4 0.44 0.69 0.69 0.15 0.69
Return on invested capital (ROIC)5 9.38% 16.74% 15.39% 5.56% 13.90%
Averages
RR 0.53
ROIC 12.20%
 
FCFF growth rate (g)6 6.47%

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).

1 See details »

2019 Calculations

2 Interest and debt expense, after tax = Interest and debt expense × (1 – EITR)
= 458 × (1 – 20.20%)
= 365

3 EBIT(1 – EITR) = Net income attributable to Phillips 66 + Interest and debt expense, after tax
= 3,076 + 365
= 3,441

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [3,4411,935] ÷ 3,441
= 0.44

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 3,441 ÷ 36,673
= 9.38%

6 g = RR × ROIC
= 0.53 × 12.20%
= 6.47%


FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (52,422 × 11.65%1,336) ÷ (52,422 + 1,336)
= 8.88%

where:

Total capital, fair value0 = current fair value of Phillips 66 debt and equity (US$ in millions)
FCFF0 = the last year Phillips 66 free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Phillips 66 capital


FCFF growth rate (g) forecast

Phillips 66, H-model

Microsoft Excel
Year Value gt
1 g1 6.47%
2 g2 7.07%
3 g3 7.68%
4 g4 8.28%
5 and thereafter g5 8.88%

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

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 6.47% + (8.88%6.47%) × (2 – 1) ÷ (5 – 1)
= 7.07%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 6.47% + (8.88%6.47%) × (3 – 1) ÷ (5 – 1)
= 7.68%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 6.47% + (8.88%6.47%) × (4 – 1) ÷ (5 – 1)
= 8.28%