Phillips 66 Downgraded to Neutral by BofA, Valero Upgraded to Buy

Phillips 66 was downgraded to Neutral from Buy by Bank of America, while Valero Energy was upgraded to Buy from Neutral. The downgrade of Phillips 66 came with a $147 price target, while Valero Energy saw a slight increase in trading. The moves reflect changes in the refinery rating and potential shifts in the companies' financial prospects.

In a significant move that reflects evolving market conditions, Bank of America (BofA) has revised its ratings for Phillips 66 (NYSE: PSX) and Valero Energy (NYSE: VLO). The changes come as the financial sector navigates through a complex landscape of refining margins and crude oil prices.

Phillips 66, a major player in the refining sector, saw its rating downgraded from Buy to Neutral by BofA. The downgrade was accompanied by a reduction in the price target from $144 to $147, indicating a 14% upside potential [1]. The downgrade was attributed to weaker prospects for Phillips 66's natural gas liquids and chemicals businesses. Additionally, the company is facing significant challenges from the permanent shutdown of its Los Angeles-area refinery and a legal penalty of $195 million [3]. Despite these challenges, Phillips 66 remains committed to its operational strength and capital returns initiatives, aiming to achieve $4.5 billion in annual EBITDA by 2027 [3].

In contrast, Valero Energy received an upgrade from Neutral to Buy, with a price target increased from $152 to $179. The upgrade reflects BofA's belief that Valero stands to benefit from an expected widening in the price gap between light and heavy crude over the next year. The bank estimates that a $1.50 per barrel widening in heavy crude discounts could lift Valero’s 2026 earnings by more than 10%, offsetting an anticipated decline in refining margins [2]. This upgrade suggests a 20% upside potential for Valero Energy investors.

The broader refining sector has seen mixed signals from BofA. While margins have held up better than expected so far this year, analysts at BofA expect them to soften in 2026 due to weakening gasoline and diesel demand. They anticipate that cracks will return closer to mid-cycle levels of about $14 a barrel [2]. Among other refiners, BofA also raised its price targets for Marathon Petroleum, PBF Energy, and Delek US, reflecting potential benefits from heavier crude discounts and regulatory exemptions [2].

In summary, the adjustments by BofA highlight the shifting dynamics within the refining sector. While Phillips 66 faces significant challenges, Valero Energy is positioned to benefit from anticipated market conditions. Investors should closely monitor these developments and consider the broader implications for the sector.

References:
[1] https://seekingalpha.com/news/4491948-phillips-66-cut-valero-raised-at-bofa-in-refinery-rating-swap
[2] https://www.investing.com/news/stock-market-news/bofa-lifts-valero-rating-on-heavy-crude-advantage-but-downgrade-phillips-66-4221684
[3] https://simplywall.st/stocks/us/energy/nyse-psx/phillips-66/news/refinery-shutdown-and-legal-costs-might-change-the-case-for