Investing.com -- Goldman Sachs downgraded Phillips 66 (NYSE:PSX) to Neutral from Buy as it sees limited upside after the stock’s 14% year-to-date outperformance relative to refining peers. The firm maintained its price target of $132, implying an 8% total return from current levels.

Goldman noted that Phillips 66’s outperformance has been driven by its strategic pivot toward midstream, progress on its $3 billion non-core asset disposition target, and cost reduction efforts. However, analysts believe these positives are now priced in.

"We view these items as better reflected in the current stock price with shares approaching our 6-month price target of $132/sh," the note said.

While the firm remains constructive on the company’s diversified business mix and midstream earnings contributions, it sees limited near-term catalysts.

Improvements in refining, including higher capture rates, are expected to take multiple quarters before supporting a higher mid-cycle valuation.

Goldman acknowledged the ongoing potential in Phillips 66’s refining business but emphasized that operational improvements will take time to materialize.

"We continue to monitor for updated commentary around operational improvements in Refining and remain mindful of the softer Chemicals margin backdrop," the analysts added.

For large-cap refining exposure, Goldman continues to favor Marathon Petroleum (NYSE:MPC), where it sees an 18% total return potential.

"Among the large cap refiners, we continue to see the most upside to MPC given the value of the Midstream segment," the note stated.

Phillips 66 shares have gained about 35% since 2017, compared with a 21% rise for refining peers and a 128% increase for the S&P 500.

Despite this outperformance, Goldman views Phillips 66’s valuation as fair and is now on the sidelines, screening for dislocation opportunities elsewhere.

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