Phillips 66's Turnaround Gains Momentum as Capital Efficiency Improves

For long-term investors, identifying companies that can consistently compound value is the ultimate goal. A key signal is a business that not only reinvests capital but does so with increasing efficiency. On this front, Phillips 66 (NYSE: PSX) is showing promising signs of a sustained operational turnaround.

Return on Capital Employed (ROCE) is a critical measure of how well a company generates profits from its capital base. It is calculated as Earnings Before Interest and Tax (EBIT) divided by (Total Assets minus Current Liabilities). For Phillips 66, based on the trailing twelve months to September 2025, the ROCE stands at 5.1% ($3.0B / ($76B - $18B)).

While this figure remains below the oil and gas industry average of approximately 9%, the direction of travel is what matters most to analysts. Just five years ago, the company was operating at a loss. The shift to a 5.1% return, coupled with a 33% increase in capital employed, indicates aggressive and, so far, productive reinvestment into the business.

"The narrative here is about momentum," said David Chen, a senior energy analyst at Horizon Advisors. "Phillips 66 is in the early innings of capitalizing on its refined product slate and logistics investments. The ROCE trajectory is a lagging indicator, but it confirms their strategic pivot is gaining traction."

The market appears to agree. Over the past five years, Phillips 66 shares have delivered a total return of around 130%, significantly outperforming many peers during a volatile period for energy stocks. This suggests investors are betting on the company's ability to sustain and improve its profitability cycle.

However, not all observers are convinced. Maya Rodriguez, a portfolio manager known for her critical stance on traditional energy, offered a sharper take: "A 5.1% return is nothing to celebrate. It's barely above the cost of capital. This so-called 'turnaround' is a low-bar achievement fueled by cyclical tailwinds, not superior management. Investors are mistaking a recovery from disastrous lows for durable excellence."

James Kellerman, a retired chemical engineer and long-term shareholder, provided a more grounded perspective: "I've held PSX through the downs. Seeing them generate steady profits again and plow cash back into the business is what I invested for. It's not flashy, but it feels solid and headed in the right direction for the first time in years."

As Phillips 66 continues its reinvestment cycle, the key question is whether ROCE can climb toward—or even surpass—the industry benchmark. For now, the combination of renewed profitability, strategic capital deployment, and strong shareholder returns makes it a stock worth watching closely.

Disclaimer: This analysis is based on historical data and analyst forecasts. It is for informational purposes only and does not constitute financial advice. Investors should conduct their own research and consider their individual circumstances before making any investment decisions.