Phillips 66: Poor Assets Or Poor Leadership?
Phillips 66 possesses high-quality assets, but these assets today lack focused leadership capable of maximizing their value, costing shareholders dearly
Phillips 66’s leaders have been talking down the value of the Company’s assets in an attempt to excuse their poor performance, claiming that Phillips 66 stock is already “fairly valued”1 and that its segments don’t deserve to trade at the higher valuation multiples earned by their peers.
Regrettably, management’s dim view of their own Company’s prospects and assets has caused many investors and Wall Street analysts to doubt their own views about the fundamental strength of Phillips 66.
These doubts are misplaced. As seasoned industry executive and independent Gold Card nominee Brian Coffman put it on a recent episode of the “Streamline 66” podcast:
“I’ve heard it said that there’s a belief that maybe the assets are old and tired. And I don’t buy that argument. Phillips 66 refineries are every bit as good as [those of its peers], Valero and Marathon.”
– Brian Coffman, Streamline 66 Podcast
Unlike at Phillips 66, shareholder-focused boards and management teams at Valero and Marathon recognized the need for improvement, welcomed investor advice and responded with:
- Decisive Leadership
- Effective Corporate Structure
- Clear, Credible Strategy
- Consistent Execution
Today, these are exactly the qualities that Phillips 66 lacks – and what we are seeking to change by asking for your vote on the Gold Card today.
It takes strong, action-oriented leaders to reverse the narrative
Elliott has a long history of working constructively with companies to help create value in the energy industry. Time and again, we have found that supposedly “poor assets” are rarely the real drivers of underperformance.
In fact, it is usually management’s failures that have driven lagging operations – and in turn, management’s excuses have driven investor pessimism about the underlying quality of the assets.
The good news is that Elliott has helped many companies change the narrative about their asset quality – unlocking substantial value for shareholders in the process. When Elliott first invested in Marathon, Suncor and NRG Energy2, research analysts had similarly soured on the companies’ strategies and assets:
We use [a lower EBITDA multiple] for MPC given its relatively less desirable refining asset footprint.
Jefferies, August 2016Rain or Shine, Buybacks through Cycle; Upgrade to Buy
— Jefferies, March 2023
MPC is a top-tier refining operator with commercial excellence…MPC [is our] top refining pick even after dramatic outperformance over roughly the past two years.
[With] SU’s older asset base and the current rising cost environment, it could be difficult to lower absolute operating costs.
J.P. Morgan, April 2022SU continues to execute well under CEO Kruger, with strong operational results at nearly every Upstream and Downstream asset… Results have been impressive across the board YTD ’24, which we think is indicative of a series of smaller achievements around factors like turnaround benchmarking/efficiency and better use of physical integration, but also of change in culture at the company more broadly.
J.P. Morgan, November 2024
While our unchanged target price of $40 drives an attractive total return including dividends of ~19%, we remain In Line rated as we gain more comfort with the newly acquired business line and company’s ability to execute on its pro forma financial plan.
Evercore, June 2023During 2023 and 2024, NRG has been steadfast in executing against their operational and financial framework, which has yielded benefits as the company exceeded its adj. EBITDA guidance mid-point in ‘23 and raised its ‘24 guidance. Now with its management team firmly in-place…we believe the company’s focus will be even more acutely focused on executing its strategic initiatives.
Evercore, January 20251“In a somewhat surprising tactic, PSX management talked down the potential [sum-of-the-parts] upside (i.e., [stating that the Company is] fairly valued)…” – Piper Sandler, March 2025.
2Representative investments.
As these companies showed, with the right leadership and strategy, Phillips 66 can change the narrative – no matter what current management would have you believe.
Original View Before Narrative Shift
Phillips 66 was until recently seen as the industry leader, with high profit margins and advantaged refining assets.
Revised View Under Weak Leadership
Weak leadership, operational shortcomings, and an inefficient conglomerate structure have held Phillips 66 back — eroding Wall Street’s confidence in the quality of its assets.
Restored View
With refreshed leadership, a more efficient structure and a new strategic direction, Phillips 66 can regain its best-in-class reputation and performance.
Elliott’s Views on Value Creation at Phillips 66
Elliott nominee for Phillips 66 Board and industry veteran Brian Coffman put it best:
“We see a lot of potential in Phillips 66. … So the message would be, be optimistic, be positive. I think what we’re looking at is restoring the operating excellence that Phillips 66 has been known for historically.”