And I must say I added to both on the recent slide. I do not watch Cramer. There are better thing to discuss than his incompetence. One must be careful and understand that HIS WORDS CAN MOVE A PARTICULAR STOCK. The comments expressed on this board support that allegation.
An Old Name With a New Story
By ANDREW BARY
Investing in corporate spinoffs often has proven very profitable.
Notable success stories in recent years include Lorillard, the maker of Newport cigarettes, and Mead Johnson, the manufacturer of Enfamil infant formula.
Phillips 66 PSX -2.00% (PSX) could be another winner. The refining, chemical and energy-transportation company was jettisoned by former parent ConocoPhillips COP -1.33% (COP) on May 1. [SJBarronSub]
As at many spinoffs, Phillips and its management team aren't well-known in the investment community.
As the Phillips story becomes better understood on Wall Street, and if management executes well, the shares could rise nicely. The stock, recently around $32, looks appealing, based on its earnings and attractive asset base. It trades for seven times projected 2012 profits of $4.77 a share and has a dividend yield of 2.4%. Phillips' price/earnings ratio is about half the market multiple.
Credit Suisse analyst Edward Westlake last week began coverage of the company with an "outperform" rating and a $42 price target, telling clients in a note that Phillips and other independent refiners "trade at a deep discount to fair value."
ISI Group analyst Doug Terreson rates Phillips a "buy" with a $44 price target.
Measured by its $21 billion stock-market value, the company is the largest independent oil refiner. Others are Valero Energy VLO -0.09% (VLO) and Marathon Petroleum MPC -2.59% (MPC).
Phillips owns 11 domestic refineries with a combined capacity of 1.8 million barrels a day, and it has four refineries outside the U.S. Refiners trade for low P/E ratios because of the volatility of their profit margins and because Phillips and other domestic refiners have been reaping a windfall from relatively low-priced oil produced in the middle of the country. Investors worry that this bonanza won't last.
Messrs. Terreson and Westlake say that investors don't fully appreciate Phillips' non-refining assets, which produce about 40% of its earnings.
The chemical business, which earned $1.4 billion last year, is so profitable because 80% of its capacity is in the U.S., where low gas prices hold down input costs. "Phillips' petrochemical business will benefit in a disproportionate way from the growth in the production of natural-gas and natural-gas liquids," Mr. Terreson says.
The new company owns a 50% interest in Chevron Phillips Chemical, a highly profitable petrochemical company.
Phillips also has a half- interest in DCP Midsteam, a large producer of natural-gas liquids that also gathers and transports natural gas.
In addition, the company markets gasoline, sold through more than 8,000 independently owned service stations in the U.S.
Phillips' goal is to "improve our returns and growth" while being "shareholder-friendly," CEO Greg Garland told analysts on a conference call last month. He said the company aims to boost its dividend annually and to begin buying back stock.
If Mr. Garland meets his objectives, Phillips could be another spinoff winner.