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Phillips 66 Partners' Assets Are Appealing

Despite a high uncertainty rating, this narrow-moat refinery MLP's Gulf Coast exposure should provide a benefit over the coming years.

After updating our model to reflect

We believe Phillips 66 Partners has a narrow economic moat due to an efficient scale moat source. Phillips 66 has a solid collection of pipeline, terminal, marine, and NGL assets, and projected future dropdowns from Phillips 66 look to be of similar quality and focused mainly around oil and refined product pipelines, and NGL assets (export terminals, fractionation units, and loading terminals) located on the Gulf Coast. The moat for these assets is based on their location, either directly part of a Phillips 66 refinery or close by, and usually the asset is the only one of its type serving the refinery and handles all of its needs, making it uneconomic for competitors to enter the space. Due to the asset network’s concentration within the Gulf Coast and the Midcontinent, the narrower network should provide attractive investment opportunities to build new connections and control barrels better once they enter the system versus a more geographically disperse network of pipelines.

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About the Author

Stephen Ellis

Strategist
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Stephen Ellis is an energy and utilities strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc., covering midstream companies. Ellis is a former member of Morningstar’s China Economic Committee, which provides research on the long-term outlook for the Chinese economy.

Before assuming his current role in 2017, he was director of equity research for financial services and a senior equity analyst. He is also a former editor of the Morningstar Opportunistic Investor newsletter and a former member of the Economic Moat Committee, a group of senior members of the equity research team responsible for reviewing all Economic MoatTM and Moat TrendTM ratings issued by Morningstar.

Prior to joining Morningstar in 2007, he worked as a freelance analyst for The Motley Fool and spent three years working in project and financial analysis for Environmental Systems Research Institute (ESRI), a supplier of geographic information system software and geodatabase management applications.

He holds a bachelor’s degree in business administration and a master’s degree in business administration from the University of Redlands.

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