Phillips 66 Buyback Pace In Doubt, According To Barclays

Although EPS was in line with consensus and Cheng's estimate, the analyst believes Phillip's Q2 results will eventually have a negative impact on share's near-term performance.

The analyst was disappointed with Phillips 66's "weaker-than-expected" refining and natural gas liquids (NGL) business, which show the company may be lagging compared to competitors such as Valero Energy Corporation VLO and Marathon Petroleum Corp MPC, which reported better-than-expected refining results.

Failure Of Phillip's Sweeny NGL Fractionator 1

"Despite the startup of the Sweeny NGL Fractionator 1 since 4Q15, NGL results have not shown any of the promised improvement, and management now insinuates that the low level of profitability could continue through the year (heavier NGL feedstock is less optimal, and various maintenance work will continue)," stated Cheng.

Related Link: Barclays' Q2 Predictions For Big Oil

Decreasing Capex

Additionally, management "sliced" capital expenditures (capex) down from $2.9 billion to $3.3 billion or less for 2016 and 2017, which was expected to amount at $3.0 billion, below Cheng's estimate of $3.4 billion.

"We think the capex cut begins to address investors' concerns surrounding PSX's high spending levels, but we think PSX will still likely suffer a free cash flow deficit after capex and dividend through 2017," stated Sweeny.

Share Buyback Probability Falling

Finally, as a result of these disappointments and cuts, Cheng believes Phillips 66 "may not be able to sustain their current pace of buyback in 2017."

The analyst maintains the company's Equal-Weight rating and $86.00 price target for the oil company.

According to TipRanks, Paul Cheng is among the best analyst's covering Phillips 66, with a 60 percent success rate and a +4.9 percent average return per recommendation.

At time of writing, Phillips 66 traded at $74.96, down 1.45 percent.

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