UBS lowered its 1Q17 EPS estimate for Phillips 66 (NYSE:PSX) to $0.11 from $0.55 which is now below the Street mean of $0.39. Benchmark crack spreads for PSX underperformed expectations, specifically in the Central Corridor. Furthermore, WCS spreads narrowed during the quarter, partially offset by wider heavy/sour spreads on Maya crude. We also adjusted capture rates lower to reflect an extensive turnaround period and the potential for secondary product losses to increase as crude prices were higher QoQ (despite falling at the end of the quarter).
UBS believes the Refining and Marketing segments could weigh on results given the heavy turnarounds in the refining segment. Turnarounds can put significant pressure on the capture rate due to the product yield. Seasonally, 4Q and 1Q are weak periods for marketing which also could see pressure from tepid gasoline demand and lower RINs prices (that offset benefit to Refining). That said, the Chemicals segment could be a bright spot as the Company guided to an increase in utilization which coincides with HDPE chain margins being ~2.5 cents/pound higher this quarter. UBS sees Midstream result higher due to some hedge reversals and the start-up of the LPG export terminal.
UBS lowered its 2017 EPS estimate to $4.54 from $4.99 to reflect its lower estimate for 1Q17 at $0.11. UBS maintained its 2018 and 2019 estimates. UBS maintained its sum-of-the-parts derived PT of $84 that ascribes a 4.5x multiple to the refining segment. The firm also maintained its Neutral rating.