Phillips 66 (NYSE:PSX) topped estimates thanks in large measure to corporate tax reform in the U.S. A $2.74-billion benefit helped PSX stock beat estimates. Now, as oil prices head higher and profits increase, Phillips 66 expects to spend more to upgrade and expand its infrastructure. PSX is poised for greater growth.

Beat on Earnings, Missed Slightly on Revenues

Not including the tax benefit, adjusted profits for Phillips 66 stock for 4Q 2017 came in at $1.07 per share, or $6.25 per share with the tax benefit included. Analysts had been looking for 86 cents in adjusted earnings per share (EPS). While this is lower than the $1.66 EPS in earnings for the third quarter, it easily beat the 4Q 2016 number of 17 cents per share.

Still, revenues fell short of estimates. The company reported $30.12 billion when analysts had expected $30.61 billion.

For 2017, the company earned $9.85 per share on revenues of $104.62 billion. Analysts had expected $4.19 (not including the $5.18 per share tax reform added). So even with the tax benefit not included, the company beat EPS estimates. It fell slightly short of revenues, which were expected to be $104.74 billion.

Like many peers in its industry, PSX suffered from the 2014-16 bear market in oil prices. In this period, annual EPS fell from $8.33 per share in 2014 to a low of $2.82 per share by 2016. However, with oil trading at over $65, revenues and earnings have rebounded.

Valuation, Expansion Projects and Dividends Bolster PSX Stock

With these higher oil prices, its price-to-earnings (PE) continues shrinking, and the PSX stock price keeps moving higher. At current prices, the PE stands at over 25. However, with the profit growth, its forward PE is currently just over 14.

Also, the stock rose about 25% from year-ago levels. Given the low valuation and (at least for now) high profit growth, investors will likely continue buying PSX stock.

To be sure, PSX is not the only refiner, and peers such as Valero Energy Corporation (NYSE:VLO), Marathon Petroleum Corp (NYSE:MPC) and Andeavor (NYSE:ANDV) trade at lower valuations. Of these, only Andeavor has a more steady level of sustained profit growth. Still, PSX has shown less stock price volatility, which will make it more attractive to many investors.

PSX feels confident enough about oil prices and profits to ramp up several projects. Phillips 66 will partner with Enbridge Inc (USA) (NYSE:ENB) to build a pipeline across Texas from the oil-rich Permian Basin to the Gulf Coast. Both companies expect this Gray Oak pipeline to ship 384,000 barrels of oil per day.

The company also a 25,000-barrel/day isomerization unit at its Lake Charles, Louisiana refinery and will expand capacity on its Sand Hills natural gas pipeline.

Moreover, the company has remained solid during the recent downturn. Despite the steep profit decline, the dividend for PSX stock increased every year since its 2012 founding, including the down years.

The company currently pays $2.80 per share in annual dividends. This gives investors a dividend yield of just under 2.7%. Now, with its profit margin no longer under assault, the dividend will likely continue its growth.

Bottom Line on PSX Stock

The rise in oil prices has bolstered the strength and profit margins of PSX, and the recovery has only just begun. Though the company experienced a slight miss on revenue, EPS exceeded analyst expectations. Additionally, tax reform added $2.7 billion to the company’s balance sheet.

Now that oil has remained above $65 per barrel, oil prices are beginning a secular bull trend upward. With this rise in oil prices and profits, Phillips 66 has begun work on several projects that will bolster the bottom line in the years to come. With this high growth, reasonable valuation and rising dividend, PSX stock appears to be a profitable vehicle for enjoying the rise in oil prices.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.