Valero Energy Corporation (VLO), Tesoro Corporation (TSO), Phillips 66 (PSX): Are You Prepared for a Refinery Turnaround?

A diversified value play

Phillips 66 (NYSE:PSX) is also one of the largest refiners in the U.S, with its 15 refineries aggregating to total capacity of 2.2 million barrels per day. It also owns interests in a pipeline network of over 15,000 miles spread across the U.S. Since pipelines operate on a fee-based structure, the rising demand for domestic crude logistics translates into higher revenue. This secondary income has spearheaded Phillips’ impressive financial growth over the last year.

As a result of its spectacular growth, shares of Philips 66 have appreciated by nearly 72% since it went public last year. Yet its shares appear to be undervalued with a forward P/E of 8.3x. And just like its peers, Phillips 66 (NYSE:PSX) also has its share of positive triggers.

Last month, the company announced that its Sand Hills and Southern Hills pipelines are open for service. They have a collective network of 1,500 miles, and will increment its existing pipeline coverage by around 10%. Phillips 66 (NYSE:PSX) already has one of the most strategically mapped pipeline networks in the U.S, and the new additions will connect the hydrocarbon-rich Permian basin and Eagle Ford to the Gulf Coast. This extends its lead over its peers, and analysts now estimate that shares of Phillips 66 (NYSE:PSX) can very well double in value over the coming years

Final words

In my opinion, all of the above-mentioned companies are worth a buy rating. Where Valero Energy Corporation (NYSE:VLO) offers value that’s unlocking, Tesoro Corporation (NYSE:TSO) and Phillips 66 (NYSE:PSX) offer stellar growth potential. But since this thesis holds ground if the WTI-Brent spread widens, investors should keep a close eye on the spread. As of today, the spread stands at $2.47 per barrel, which seems to have started widening.

The article Are You Prepared for a Refinery Turnaround? originally appeared on Fool.com and is written by Piyush Arora.

Piyush Arora has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Piyush is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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