A little activism from Elliott Management nudged Phillips 66 stock to a record close, and if the firm gets its way, there may be more upside ahead.
Elliott unveiled a roughly $1 billion stake in Phillips 66 earlier this week, arguing that the integrated oil and gas company's decision to de-emphasize refining meant that it missed the refining supercycle of the last two years, leading it to underperform peers such as Marathon Petroleum and Valero Energy.
But while Elliott criticized Phillips 66's underperformance and missteps in a letter to the company's board, it appeared to be supportive of plans laid out by Chief Executive Mark Lashier, which include selling some $3 billion of noncore assets and planning to return more capital to shareholders. Still, Elliott believes Phillips 66 could use more prodding and is seeking two seats on the board.
With changes in place, Elliott believes Phillips 66 shares could advance 75%. Wall Street is similarly bullish.
"An activist shareholder, Elliott, can be a positive catalyst for shareholders," wrote Wells Fargo Securities analyst Roger Reed, adding that Elliott's letter might push Phillips "to take actions they otherwise might not." Reed has an overweight rating on the shares and a $143 price target.
Representatives from Phillips 66 acknowledged receiving Elliott's letter and recent conversations with the activist hedge fund. "The Phillips 66 board and management team welcome the perspectives of our shareholders and value their input," the company said.