Jim Cramer is Watching These 8 Stocks

5. Phillips 66 (NYSE:PSX)

Number of Hedge Fund Holders: 39

Discussing Phillips 66 (NYSE:PSX) during the episode, Cramer said:

“And listen, that’s not even an exhaustive list of M&A activity this week. Well, on Monday, Phillips 66 announced a deal to acquire certain privately held natural gas infrastructure assets for over $2 billion… Looking at the transactions we’ve seen just this week, while some of them likely would’ve been challenged by Biden’s ideologically driven regulators, most of them seem pretty justifiable. All of them make great business sense…”

Phillips 66 (NYSE:PSX) is an energy manufacturing and logistics company that operates internationally, involved in the transportation, storage, refining, and marketing of petroleum products, as well as the production and sale of chemicals. On January 6, it announced that it had entered into an agreement to acquire EPIC Y-Grade GP, LLC and EPIC Y-Grade, LP for $2.2 billion in cash. These entities own subsidiaries and assets, including long-haul natural gas liquids (NGL) pipelines, fractionation facilities, and distribution systems. This transaction is expected to immediately increase earnings per share once it closes.

The company has focused significantly on expanding its NGL capabilities as it expects that NGL output will surpass crude oil production growth by the end of the decade, driven by strong demand from petrochemical manufacturers. CEO Mark Lashier commented that the acquisition optimizes the company’s Permian NGL value chain and will improve its ability to provide comprehensive flow assurance to producers.

He added that the deal is expected to generate returns that exceed the company’s hurdle rates. Despite the acquisition, Phillips 66 (NYSE:PSX) does not expect to increase its 2025 capital program, even as EPIC NGL works to expand its pipeline capacity.