Is Phillips 66 (PSX) a Buy, Sell, or Hold in 2025?

In 2025, Phillips 66 (PSX) has navigated a complex mix of operational challenges and strategic reinvention, leaving investors with critical questions about its valuation and long-term prospects. This analysis evaluates the company's investment potential through three lenses: earnings momentum, valuation metrics, and industry positioning, drawing on recent financial disclosures, capital allocation plans, and sector trends.

Earnings Momentum: A Tale of Two Segments

Phillips 66's fourth-quarter 2024 results underscored the volatility inherent in its diversified energy portfolio. The company reported GAAP earnings of $8 million or $0.01 per share, but an adjusted loss of $61 million or $0.15 per share due to $230 million in accelerated depreciation tied to the Los Angeles Refinery according to the company's financial report. This marked a sharp decline from Q3 2025's robust performance, where adjusted earnings of $2.52 per share exceeded expectations as reported in Q3 earnings.

However, the story is not uniformly bleak. Midstream and Renewable Fuels segments delivered standout results, with record NGL fractionation and LPG export volumes in Midstream and improved margins at the Rodeo Complex in Renewable Fuels according to the company's financial report. These segments highlight Phillips 66's pivot toward higher-margin, capital-efficient operations. Meanwhile, the Refining segment faced headwinds, driven by weak crack spreads and the Los Angeles Refinery's write-down as reported in the financial report.

Looking ahead, the company's 2026 capital budget of $2.4 billion-allocated to sustain and grow Midstream and Refining operations-signals a strategic focus on operational efficiency and infrastructure expansion according to the company's capital plan announcement. While Q4 2024 results were disappointing, the broader trend of shareholder returns (e.g., $1.1 billion returned via dividends and buybacks in Q4 2024) and cost-cutting initiatives (e.g., $1.5 billion in business transformation savings in 2024 as reported in the financial report) suggests a disciplined approach to capital management.

Valuation Metrics: A Mixed Bag of Signals

Phillips 66's valuation metrics present a nuanced picture. The stock currently carries a Forward P/E ratio of 22.44–22.7, significantly above the industry average of 14.05–14.26 according to Yahoo Finance. This premium reflects both the company's historical resilience and lingering concerns about refining sector profitability. However, the PEG ratio of 0.73–0.74 according to Yahoo Finance suggests the stock is undervalued relative to its projected earnings growth, outperforming the industry's average PEG of 0.98–1.19 according to Yahoo Finance.

The Zacks Rank of #3 (Hold) further reinforces this duality. Analysts appear cautious about near-term earnings revisions but acknowledge the company's long-term potential according to Yahoo Finance. For value-oriented investors, the low PEG ratio and strong balance sheet with a focus on debt reduction could justify a contrarian position. Yet the elevated Forward P/E demands confidence in management's ability to execute its capital allocation strategy and restore refining margins.

Industry Positioning: Navigating a Shifting Energy Landscape

Phillips 66 operates in the Oil and Gas - Refining and Marketing industry, which holds a Zacks Industry Rank of 76–85 according to Yahoo Finance, reflecting strong relative performance. This positions the company to benefit from broader sector tailwinds, such as increased demand for clean fuels and infrastructure modernization. However, the refining segment's exposure to volatile crack spreads remains a risk.

The company's strategic emphasis on Midstream and Renewable Fuels aligns with industry trends favoring stable cash flows and decarbonization. For instance, the $1.1 billion allocated to Midstream growth projects in 2026 according to the company's capital plan announcement-including LPG export capacity-positions Phillips 66 to capitalize on global energy transitions. Meanwhile, its commitment to returning over 50% of operating cash flow to shareholders as reported in the financial report reinforces its appeal to income-focused investors.

Investment Verdict: A Cautious "Hold" with Conditional Upside

Phillips 66's 2025 performance reflects the challenges of balancing legacy refining operations with growth in higher-margin segments. While the company's capital discipline, shareholder returns, and strategic reallocation of resources are positives, the near-term outlook is clouded by refining margin pressures and a high Forward P/E.

For investors, the decision to "hold" is justified by the Zacks Rank according to Yahoo Finance and the company's focus on debt reduction and operational efficiency. However, a "buy" case could emerge if Phillips 66 successfully executes its 2026 capital plan, stabilizes refining margins, or sees a re-rating of its stock as the PEG ratio suggests. Conversely, a "sell" might be warranted if refining conditions deteriorate further or if the company fails to meet its debt reduction targets.

In conclusion, Phillips 66 remains a strategic hold in 2025, offering a blend of defensive qualities and growth potential for investors with a medium-term horizon.