Phillips 66 (PSX) will likely see a solid year-on-year improvement in earnings this year compared with 2025, despite a weak Q1, which was hit by one-time items, UBS said in a note Monday.
Phillips 66 will benefit from margin tailwinds in three of its key businesses: Refining, where margins are "well above mid-cycle levels," Chemicals, where "margins are recovering from historic lows toward mid-cycle," and Renewable Diesel, where margins are expected to go from "below break-even to mid-cycle levels," the note said.
The three businesses will likely lead to an increase in the company's year on year free cash flow generation, which will allow it to de-lever at an "accelerated pace," UBS said.
The investment firm said it sees a "clear pathway to stronger earnings power and balance sheet improvement" this year.
UBS has a buy rating on Phillips 66 and a $212 price target.
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