Freedom Broker: Phillips 66 shares are already above fair value

Freedom Broker analysts view Phillips 66 (PSX) results for Q2 2026 positively: the company benefited from a shortage of petroleum products and a sharp rise in refining margins, while also significantly reducing its debt burden. However, the quarter’s record profit should not be extrapolated over the long term. The analysts raised the target price for Phillips 66 shares to $173, but kept the recommendation at “Sell.” At the current price of $215,50, the downside potential is 19,7%.

Phillips 66 is an integrated refiner

Phillips 66 is a U.S. energy company operating in oil refining, transportation and storage of oil and gas, petrochemicals, fuel marketing, and renewable fuel production. The company’s business combines refining capacity with Midstream infrastructure, which allows it to generate income not only from refining margin dynamics but also from relatively stable cash flows from the infrastructure business.

Record margin became the main profit driver

Freedom Broker experts viewed Phillips 66’s second-quarter reporting positively, as well as the sharp reduction in debt burden, which creates room to accelerate share buybacks in the second half of the year. The company fully capitalized on the shortage of petroleum products, the analysts note.

Phillips 66 revenue in Q2 increased by 53,1% year over year and by 56,7% quarter over quarter—to $51 billion. The main growth factor was higher prices for crude oil and petroleum products amid the conflict in the Middle East, a decline in China’s exports of petroleum products, and capacity reductions in Russia.

The average WTI crude price for the quarter was $93,21 per barrel versus $63,86 a year earlier and $71,98 in Q1. At the same time, the company’s costs for purchasing crude oil and petroleum products rose by 50,2% year over year, to $43,7 billion.

Against this backdrop, Phillips 66 adjusted earnings increased by nearly 3.9x—from $973 million a year earlier to $3,8 billion. Adjusted earnings per share rose by 295,4%, to $9,41, versus $0,49 in the previous quarter. Adjusted EBITDA came in at $5,89 billion versus $1,23 billion in the prior quarter.

Refining delivered the bulk of the increase

The main source of the record result was Phillips 66’s key operating segment, Refining, which specializes in oil refining; the company operates large refineries in the U.S., the U.K., and Germany. Its adjusted pre-tax earnings increased almost eightfold year over year—to $3,1 billion, and adjusted EBITDA reached $3,3 billion.

Realized refining margin increased to $24,08 per barrel versus $11,25 a year earlier and $10,11 in Q1. The highest figures were in the Central Corridor (refineries in the central United States) and on the West Coast (plants on the U.S. West Coast)—$29,56 and $29,65 per barrel, respectively.

Refining utilization reached 96%, and the yield of light petroleum products was 86%. According to analysts, it was precisely the combination of high refinery utilization and a shortage of petroleum products that allowed Phillips 66 to earn an exceptionally high margin.

Why analysts maintain a “Sell” rating

Despite an outstanding quarter, analysts believe the current share price already reflects a significant portion of the positive factors. Phillips 66’s record profit was largely driven by exceptionally favorable refining market conditions, and it is difficult to sustain such a high margin over an extended period.

The key risk to the investment case remains a reduction in the global shortage of petroleum products. In particular, the reopening of the Strait of Hormuz could lead to a recovery in supplies and a subsequent decline in refining margins.

At the same time, the ongoing shortage of refining capacity and low inventories of petroleum products remain potential growth drivers. Additional support for the shares could come from a high dividend yield and increased buyback volumes.

What you need to know about Phillips 66

In January 2026, Phillips 66 purchased the first batch of Venezuelan oil after a change in U.S. policy toward supplies from Venezuela. The company also participates in the Western Gateway project together with Kinder Morgan, which involves developing infrastructure to supply fuel from Texas to Arizona and California.

In February 2025, Phillips 66 shares surged after reports that hedge fund Elliott Investment Management acquired a stake in the company of more than $2,5 billion. Elliott advocated simplifying Phillips 66’s business structure and a possible spin-off or sale of part of its Midstream assets.

This is not an individual investment recommendation.