Phillips 66's Renewable Pivot: Can the J.P. Morgan Chat Re-Rate Its Valuation?

As the energy transition accelerates, oil refiners face a stark choice: double down on hydrocarbons or pivot toward lower-carbon solutions. Phillips 66 (PSX) has positioned itself as a hybrid player, blending traditional refining with a push into renewables. Ahead of its CEO's June 18 fireside chat at the J.P. Morgan Energy Conference, investors are scrutinizing whether the company's strategic moves—divesting non-core assets, expanding renewable fuels, and setting emissions targets—will justify a valuation re-rating or if risks like policy shifts could derail progress.

Renewable Fuels: The Growth Engine?

Phillips 66's most visible renewable play is the Rodeo Renewable Energy Complex, a former refinery in California converted into one of the world's largest renewable diesel and sustainable aviation fuel (SAF) facilities. In Q4 2024, renewable fuels production hit 42,000 barrels per day (MB/D), with margins boosted by strong international demand. The company has allocated $56 million in its 2025 growth budget to optimize feedstocks and logistics at Rodeo, signaling confidence in scaling this business.

Beyond the U.S., the firm is leveraging its global refining network to expand renewable fuels, with international results contributing meaningfully to renewable segment profitability. However, the pace of growth hinges on policy tailwinds, such as the Inflation Reduction Act's tax credits for SAF and renewable diesel. A key question for investors: Will CEO Mark Lashier clarify how much capital will shift from refining to renewables, and when this could meaningfully impact earnings?

Divesting the Non-Core: Europe and Beyond

Phillips 66's strategic discipline is evident in its asset rationalization. In May 2025, it agreed to sell a 65% stake in its German and Austrian retail business (843 JET-branded sites) to a consortium led by Energy Equation Partners and Stonepeak for ~$2.8 billion. This move, part of a broader $3.5 billion divestment program since 2023, frees capital for debt reduction and shareholder returns while narrowing focus to core refining, midstream, and renewables.

The transaction also reflects pressure from activist investor Elliott Management, which has pushed for portfolio simplification and governance changes. While Phillips 66 retains a 35% non-operational stake and a supply agreement with its MiRO refinery, the move underscores a clear capital allocation priority: redeploying cash toward higher-margin, lower-carbon assets.

Emissions Targets: Ambition vs. Execution

The company aims to cut Scope 1 and 2 GHG emissions by 30% by 2030 (from a 2019 baseline), primarily via process improvements, methane management, and renewable energy adoption. However, its Scope 3 emissions—a larger portion tied to end-use of its products—remain untargeted, a potential regulatory risk as global carbon accounting standards evolve.

J.P. Morgan Conference: What to Watch For

Lashier's presentation will be a litmus test for investor sentiment. Key topics to track:
1. Renewables Growth Trajectory: Will the company provide clarity on future renewable fuel capacity additions or partnerships?
2. Divestment Proceeds Use: How will the ~$1.6 billion from the European sale be allocated—debt paydown, buybacks, or new projects?
3. Refining vs. Renewables Capital Allocation: Will refining remain the cash cow subsidizing renewables, or is there a path to renewables becoming a standalone profit driver?
4. Regulatory Risks: How is the company preparing for potential stricter emissions rules or shifts in energy policy?

Catalysts for Re-Rating

• Dividend Upside: With ~$5.3 billion returned to shareholders in 2024 and a target to return over 50% of cash flow, a dividend hike post-divestment could attract yield-seeking investors.
• Debt Reduction: A $17 billion debt target by 2027 improves financial flexibility, reducing refinancing risks.
• Rodeo's Scalability: If Rodeo's margins exceed expectations, it could validate the renewable model and justify higher multiples.

Risks to Consider

• Policy Volatility: A shift in U.S. tax incentives or international trade barriers (e.g., EU's carbon border tax) could disrupt renewable fuel economics.
• Refining Margins: Crude oil price swings and oversupply in refining could pressure earnings, especially if renewable projects aren't yet cash-flow positive.
• Activist Pressure: Elliott's board nominees are up for a shareholder vote in May. A contested outcome could create governance uncertainty.

Investment Thesis: Buy the Dip Ahead of the Conference

Phillips 66 trades at ~6.5x 2025E EBITDA, a discount to peers due to refining sector headwinds and uncertainty around its transition strategy. The J.P. Morgan presentation is a critical inflection point. If Lashier articulates a clear, capital-efficient path to renewables growth and demonstrates discipline in capital returns, the stock could re-rate toward 8x–9x EBITDA.

Buy Signal: Accumulate shares ahead of the June 18 chat at $80–$85, targeting $100+ if the narrative is positive. Avoid if refining margins deteriorate further or the European divestment faces regulatory delays.

Risk Management: Pair a long position with a put option to hedge against near-term volatility. Monitor refining crack spreads and renewable fuel tax credit developments.

In conclusion, Phillips 66's pivot to renewables is real, but its success depends on execution. The J.P. Morgan chat will test whether the company's vision aligns with investor expectations—or if it's still caught between two energy eras.