{"id":11142,"date":"2023-12-05T19:47:01","date_gmt":"2023-12-05T19:47:01","guid":{"rendered":"https:\/\/connectwithfund.com\/news\/60-gains-plus-dividends-with-phillips-66-if-elliott-is-right-nysepsx\/"},"modified":"2023-12-05T19:47:02","modified_gmt":"2023-12-05T19:47:02","slug":"60-gains-plus-dividends-with-phillips-66-if-elliott-is-right-nysepsx","status":"publish","type":"post","link":"https:\/\/connectwithfund.com\/?p=11142","title":{"rendered":"60% Gains Plus Dividends With Phillips 66 If Elliott Is Right (NYSE:PSX)"},"content":{"rendered":"
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Introduction<\/h2>\n

On November 20, I wrote an article titled 3.6% Yield And Undervalued – Phillips 66 Is A Top-Tier Income Play<\/em>. As that wasn’t very long ago, I wasn’t planning on writing another article.<\/p>\n

However, sometimes major changes require a closer look, especially when it comes to major activist investors that could reshape the future of a company.<\/span><\/p>\n

In my November article, I discussed a number of key issues, including the company’s focus on chemicals, its massive refining footprint with benefits like flexible feedstock, its focus on shareholder distributions, and efforts to streamline the business.<\/p>\n

Since then, Phillips 66 (NYSE:PSX<\/span>) has risen by 9%, beating the market by roughly 850 basis points.<\/p>\n

As one can imagine, I’m not the only one monitoring these developments, especially as the company has significantly underperformed its pure-play refining peers over the past few years.<\/p>\n

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Data by YCharts<\/figcaption><\/figure>\n

On November 29, Elliot Investment Management wrote an open letter to the board of Phillips to show shareholders what the company is doing wrong, how it can improve its business, and why this can result in 75% capital gains for shareholders (60% after its recent surge).<\/p>\n

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Bloomberg<\/span><\/p>\n<\/figcaption><\/figure>\n

In this article, I’ll walk you through that letter and explain what this means for existing and potential future Phillips 66 investors.<\/p>\n

So, let’s get to it!<\/p>\n

What’s Elliott?<\/h2>\n

Established in 1977, Elliott Investment Management is one of the world’s largest activist funds in the world.<\/p>\n

Founded by star investor Paul Singer, the fund started to pursue distressed debt, and going after issuers through court battles of debt was left unpaid.<\/p>\n

Currently, it is a business that gets involved with corporations if it sees hidden value. They have a particular focus on technology, financial services, and energy.<\/p>\n

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The firm takes equity-oriented positions in several of its strategies<\/strong>, and takes on such positions in a variety of forms. It is less common for the firm to take on long equity positions which are just driven by valuation considerations. Elliott seeks out positions in particular which are uncorrelated with other positions in the portfolio or with the risks and expected price movements of equities generally, or where value and protection against risk can be enhanced by the firm\u2019s manual efforts<\/strong>. – Elliott Investment Management (emphasis added)<\/em><\/p>\n<\/blockquote>\n

As I had the privilege of working with people who applied a similar strategy in the past (on a much smaller level), I have always been impressed by the impact some funds can have on companies – especially when they unlock equity value without hurting a company’s long-term position.<\/p>\n

After all, it is possible to increase short-term shareholder value while wrecking a company’s survival chances.<\/p>\n

That’s not the case at Phillips 66.<\/p>\n

There’s Tremendous Value In Phillips 66<\/h2>\n

Phillips 66 is Elliott’s new target. The company has revealed a $1 billion stake in the company, which would make it a top seven investor, according to my data.<\/p>\n

As I already briefly mentioned, on November 29, the company wrote a letter to the board of Phillips 66, explaining its dissatisfaction with the current state of the company.<\/p>\n

In this article, I will share a few quotes from the letter, which can be accessed here: Elliott’s letter to Phillips 66.<\/p>\n

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As we have explained in our discussions with CEO Mark Lashier and the executive leadership team over the past several weeks, we are investors in Phillips 66 today because of our strong confidence in the path to realizing significant value-creation at the Company.<\/em><\/p>\n<\/blockquote>\n

Essentially, Phillips 66 was off to a great start when it spun off from ConocoPhillips (COP), one of the world’s largest upstream energy companies.<\/p>\n

Unfortunately, in recent years, PSX has turned into a significant underperformer, as its pure-play peers Valero Energy (VLO) and Marathon Petroleum (MPC) benefited from the refinery super-cycle when post-pandemic supply was constrained while demand came roaring back.<\/p>\n

As both VLO and MPC were printing money, PSX lagged behind, admitting earlier this year that “We have taken our eye off the ball a little bit with respect to refining.” That’s a quote from the Elliott letter, which also contained the following chart:<\/p>\n

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Elliott Financial Management<\/span><\/p>\n<\/figcaption><\/figure>\n

Basically, Elliott believes that the loss of confidence is based on two drivers:<\/p>\n