Skip to Content
Stock Analyst Update

Phillips 66 Partners' Assets Are Appealing

Despite a high uncertainty rating, this narrow-moat refinery MLP's Gulf Coast exposure should provide a benefit over the coming years.


After updating our model to reflect  Phillips 66 Partners' (PSXP) latest results and dropdowns, we are maintaining our $55 fair value estimate and narrow moat. Our fair value estimate implies a 2018 EV/EBITDA multiple of 12 times and a LP distribution yield of 6%. We see units as slightly undervalued, reflecting investors' shift away from awarding premium multiples to MLPs with high growth in distributions. However, we've raised our fair value uncertainty rating to high from medium due to the uncertainty surrounding the timing and profitability of the $700 million-$900 million in EBITDA in the drop-down portfolio as well as the expected eventual incentive distribution rights elimination. 

We believe Phillips 66 Partners has a narrow economic moat due to an efficient scale moat source. Phillips 66 has a solid collection of pipeline, terminal, marine, and NGL assets, and projected future dropdowns from Phillips 66 look to be of similar quality and focused mainly around oil and refined product pipelines, and NGL assets (export terminals, fractionation units, and loading terminals) located on the Gulf Coast. The moat for these assets is based on their location, either directly part of a Phillips 66 refinery or close by, and usually the asset is the only one of its type serving the refinery and handles all of its needs, making it uneconomic for competitors to enter the space. Due to the asset network’s concentration within the Gulf Coast and the Midcontinent, the narrower network should provide attractive investment opportunities to build new connections and control barrels better once they enter the system versus a more geographically disperse network of pipelines. 

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Stephen Ellis does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.