Mizuho Downgrades Phillips 66, Delek, and Par Pacific on Valuations

Mizuho Securities downgraded U.S. refiners Phillips 66, Delek US Holdings, and Par Pacific Holdings to neutral from outperform, citing a 152% sector rally that has fully priced in surging refining margins and left shares with limited upside.

The widespread downgrades arrive after a historic run for independent refiners, which have vastly outperformed broader energy equities and the stock market amid tight fuel inventories and strong domestic demand throughout the year.

Valuations Surge Past Historical Averages

Underpinning the valuation caution from Mizuho Securities is an expanding multiple gap compared to historical norms. On two-year forward estimates, the refining group now trades at approximately 8.5 times enterprise value to EBITDA, standing roughly two standard deviations above its historical average of about 6.7 times.

This valuation expansion follows a massive wave of capital inflows into the sector. Refining stocks have surged about 152% this year, dramatically outpacing the Energy Select Sector SPDR Fund (XLE) gain of about 42%, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) advance of about 48%, and the S&P 500 increase of about 14%.

Cracks Spreads and Capacity Utilization

The fundamental backdrop remains supported by tight physical markets. According to market data cited by Investing.com, U.S. refinery utilization reached a record 96.3% in the third quarter, while gasoline and diesel-type fuel inventories remain near the bottom of their historical ranges.

Reflecting these strong near-term fundamentals, Mizuho modeled higher forward crack spreads. The firm projects a blended U.S. crack spread of about $42 a barrel in 2026 and $34 in 2027, before easing to about $28 from 2028 onward, comparing favorably to its previous long-term assumption of about $24.

Price Target Adjustments Across the Group

Despite lowering their ratings to neutral, the analysts adjusted price targets upward to account for the raised margin forecasts and company-specific catalysts:

• Phillips 66: Price target raised to $300 from $220.
• Delek US Holdings: Price target raised to $83 from $66, incorporating 2025 small refinery exemptions already granted.
• Par Pacific Holdings: Price target raised to $91 from $85.

What Is at Stake for Energy Investors

The analyst actions highlight the tension between strong operating fundamentals and peak cyclical multiples. While high utilization rates and lean inventories continue to support strong cash generation, paying more than two standard deviations above historical valuation multiples leaves little margin for error should macro demand soften or capacity expansions outpace consumption.