Mizuho Cuts Phillips 66, Delek and Par Pacific as Refiners Rally
Mizuho Securities has downgraded Phillips 66 (NYSE: PSX), Delek US Holdings (NYSE: DK) and Par Pacific Holdings (NYSE: PARR) from “Outperform” to “Neutral,” arguing that the powerful rally in U.S. refining stocks has already priced in much of the expected earnings improvement.
The unusual part of the call is that Mizuho is raising its price targets while simultaneously lowering its ratings. The brokerage lifted its targets across U.S. refiners by about 40% on average, reflecting a more bullish view of refining margins, but said the stocks have moved so far that the remaining upside is limited.
Mizuho now sees only about 4% average upside to its revised targets for the three downgraded names. That makes the call less about deteriorating refinery fundamentals and more about valuation after a very strong run.
Why Did Mizuho Downgrade the Refiners?
The central issue is that refining stocks have rallied much faster than the broader market.
Mizuho estimates U.S. refining stocks are up roughly 152% in 2026, compared with gains of about 42% for the Energy Select Sector SPDR Fund (XLE), 48% for the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and 14% for the S&P 500, according to the brokerage's latest research.
That creates a classic valuation problem.
Even if earnings continue improving, investors buying the stocks today may receive less benefit because much of that improvement is already reflected in share prices.
Mizuho estimates the refining group trades at roughly 8.5 times two-year-forward enterprise value to EBITDA, around two standard deviations above its historical average of approximately 6.7 times. Enterprise value to EBITDA, or EV/EBITDA, compares a company's overall value with its operating earnings and is commonly used to compare companies with different debt levels.
In other words, the market is already paying a premium for the stronger refining environment.
Mizuho Is Actually More Bullish on Refining Margins
The downgrade should not be interpreted as a bearish call on the underlying refining market.
Mizuho has raised its assumptions for U.S. crack spreads, which are a critical measure of refinery profitability. A crack spread broadly represents the difference between the value of refined products such as gasoline and diesel and the cost of the crude oil used to produce them.
The brokerage now expects a blended U.S. crack spread of about $42 per barrel in 2026, $34 in 2027 and approximately $28 from 2028 onward. Its previous long-term assumption was about $24.
That is an important distinction.
Mizuho is effectively saying that refinery earnings could remain stronger for longer than previously expected, but the stocks have already anticipated much of that improvement.
Phillips 66: Target Jumps to $300
For Phillips 66, Mizuho raised its price target to $300 from $220 while cutting the rating to Neutral from Outperform.
The revised target represents roughly 10% upside based on the share price referenced in the report. But Mizuho believes the market has already incorporated much of the improvement in Phillips 66's refining business and the near-term earnings benefit from stronger crack spreads.
Phillips 66 has strong operational momentum behind it.
The company reported $3.8 billion of adjusted earnings in the second quarter of 2026, compared with $200 million in the first quarter. Refining adjusted pre-tax income improved primarily because of higher realized margins, including stronger market crack spreads. Refining utilization reached 96%, while clean product yield was 86%.
The company's next major catalyst is its third-quarter earnings report, scheduled for October 28, 2026.
That report will help determine whether the strong refining environment is translating into earnings at the pace investors currently expect.
Delek US: More Than 150% Rally Raises the Bar
Mizuho also downgraded Delek US to Neutral but raised its price target to $83 from $66.
The reason is similar: the stock has already risen more than 150% this year, leaving less room for further gains even after Mizuho increased its earnings assumptions.
Delek's fundamentals have improved considerably.
In the second quarter, Delek reported $169.5 million of net income, adjusted net income of $343.9 million and adjusted EBITDA of $638.7 million. The company highlighted its high distillate yield, access to advantaged crude supplies and improving performance at its Big Spring refinery as factors supporting profitability.
Delek has also been implementing its Enterprise Optimization Plan, which management said was progressing and aimed at generating additional cash-flow improvements.
Mizuho's concern is therefore not that the company has suddenly become weaker. Rather, the market has already rewarded the improvement.
Par Pacific: Strong Earnings but a Supply Risk
Mizuho lifted its target for Par Pacific to $91 from $85 while moving the stock to Neutral.
The new target offers roughly 6% upside, according to the brokerage's analysis. Mizuho believes the current share price adequately reflects expected earnings and specifically highlighted Brent-linked crude supply for Par Pacific's Hawaii refinery as a relative risk.
Par Pacific has also benefited from the stronger refining environment.
The company reported $499.2 million of adjusted net income and $571.3 million of adjusted EBITDA for the second quarter of 2026. It said its Hawaii turnaround was substantially complete, with most processing units back online.
That operational improvement could help the company take advantage of favorable margins, but investors still need to consider crude-supply costs and regional refining economics.
Why Are Refining Margins So Strong?
Mizuho points to several factors supporting the refining cycle.
The Middle East conflict has continued, while Russia-Ukraine tensions have also escalated. At the same time, lower global refinery utilization and contained Chinese refined-product exports have tightened the supply picture.
U.S. refinery utilization reportedly reached 96.3% in the third quarter, while gasoline and diesel-type inventories remained near the lower end of their historical ranges.
This combination matters because refiners benefit when demand for fuels remains solid while available refining capacity is constrained.
Mizuho also expects refinery maintenance to remove nearly 7% of U.S. capacity in 2027, compared with roughly 5% in 2026. That could keep refining margins elevated for a period before they eventually normalize.
The Risk: A Strong Refining Cycle Is Still Cyclical
The biggest issue for investors is that refining earnings are highly cyclical.
High crack spreads can generate enormous profits when refined-product supply is tight. But those margins can fall quickly when refinery capacity increases, fuel demand weakens or inventories rebuild.
Mizuho's long-term crack-spread assumption remains below current futures prices, suggesting the brokerage expects today's unusually strong margins to moderate over time.
That is why valuation matters so much.
A refiner trading at a historically high multiple can fall even while its earnings remain strong if investors begin anticipating lower margins in future years.
What Investors Should Watch Next
For investors tracking Phillips 66, Delek US and Par Pacific, several indicators will be particularly important:
Refining margins: Sustained crack spreads would support earnings, while a rapid decline could pressure profit expectations.
Fuel inventories: Low gasoline and diesel inventories can help maintain favorable pricing conditions.
Refinery utilization: High utilization supports throughput, but prolonged high utilization could eventually increase supply and pressure margins.
Maintenance outages: Planned shutdowns can temporarily tighten refined-product supply and support margins.
Crude differentials: The cost and availability of crude feedstock can materially affect individual refiners differently.
Valuation: Even strong earnings may not produce strong stock returns if investors have already priced in the improvement.
Third-quarter earnings: Phillips 66 reports on October 28, providing a key test of the market's elevated expectations.
What Mizuho's Call Means for Refining Stocks
Mizuho's latest move sends a nuanced message to investors.
The brokerage is not saying that U.S. refiners are heading into an earnings collapse. In fact, it has raised its assumptions for crack spreads and increased its price targets significantly.
The problem is that share prices have moved even faster.
Phillips 66's target rose from $220 to $300, Delek's from $66 to $83 and Par Pacific's from $85 to $91. Yet all three received Neutral ratings because the expected upside has narrowed.
For investors, that distinction is important. A stock can have stronger earnings ahead and still become less attractive if its valuation already reflects those gains.
The next phase of the refining rally will therefore depend on whether actual earnings can outperform the expectations already embedded in stock prices.
For now, Mizuho's message is essentially one of caution after a powerful rally: refining fundamentals remain favorable, but investors should not assume that stronger margins automatically mean unlimited stock upside.
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This article is for informational and educational purposes only and should not be considered investment advice.