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Why Murphy USA (MUSA) is a Go-to Stock in the Energy Space
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Leading independent retailer of motor fuel and convenience merchandise in the United States, Murphy USA (MUSA - Free Report) has given an impressive performance over the past year. The company also has strong earnings trends to back up its performance.
This El Dorado, AR-based company, in its current form, came into existence following the 2013 spin-off of Murphy Oil Corporation’s downstream business into a separate, independent and publicly-traded entity. Murphy USA markets refined products through a chain of retail stations, almost all of which are located near a Walmart supercenter, primarily in the Southeast, Southwest and Midwest United States.
Let’s discuss the reasons that make Murphy USA an attractive pick:
Macro Tailwinds
Even as fears revolving around high inflation and slowing growth somewhat cloud the outlook for Oil/Energy, the commodity rallied in the first quarter of 2024, with both Brent and West Texas Intermediate (“WTI”) crude futures registering significant increases. Brent oil, the global benchmark, rose nearly 14%, while WTI, which tracks U.S. crude, surged approximately 16% during the quarter. As a matter fact, the global benchmark has surged above $90 per barrel, while U.S. crude broke $86 a barrel yesterday.
Several factors contributed to the uptrend in oil prices. One significant driver was the ongoing production cut by major oil-producing nations, including Russia and members of the OPEC cartel. These cuts helped tighten the supply-demand dynamics in the market, leading to a reduction in global oil inventories.
Geopolitical tensions also played a role in supporting oil prices. Escalating conflicts, such as the Russia-Ukraine war and the Israel-Palestine conflict, raised concerns about potential supply disruptions in key oil-producing regions. Additionally, attacks on ships in the Red Sea further heightened market anxieties, contributing to the bullish sentiment.
Solid Rank and VGM Score
Murphy USA is a Zacks Rank #1 (Strong Buy) stock in the Zacks Oil and Gas - Refining & Marketing industry, which carries a Zacks Industry Rank #97. Its industry rank places it in the top 38% of more than 250 Zacks industries. In addition to the favorable rank, MUSA enjoys a Value, Growth and Momentum Score of B, B and A, respectively, each helping it round out with a VGM Score of A. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best upside potential.
Analyst Estimates Raised
MUSA’s earnings revisions have also trended in the right direction over the past 60 days, as analysts have consistently taken up their numbers. The Zacks Consensus Estimate for Murphy USA’s 2024 bottom line has gone up from a profit of $24.69 to a profit of $26.32 during this timeframe, while the next year’s projection has gone up from a profit of $23.77 per share to $27.94.
Fundamental Strength
Murphy USA’s unique high-volume, low-cost business model helps it retain high profitability even in the fiercely competitive retail environment. The company, which sells more than 4 billion gallons of retail fuel annually, owns more than 90% of its gasoline stations. This allows Murphy USA to keep its operating expenses low. The proximity of Murphy USA’s fuel stations to Walmart supercenters helps the company to leverage the strong and consistent traffic that these stores attract, thereby driving above-average fuel sales volume.
Murphy USA's strategic focus on increasing customer spending and loyalty is evident in its impressive performance metrics. With existing loyal customers spending 50% more and new customers also contributing significantly, the company's growth trajectory is robust. Initiatives like digital transformation and personalized offers are driving increased sales and fueling organic growth, making it an attractive investment opportunity.
Murphy USA’s 2021 acquisition of QuickChek Corporation — a family-owned food and beverage chain — has helped the company to improve its offerings. In particular, QuickChek’s presence in large population centers like the New Jersey/New York region is likely to have driven Murphy USA’s merchandise revenues and margins.
Finally, MUSA remains committed to returning excess cash to its shareholders through continued share buyback programs. As part of this initiative, the fuel retailer recently approved a repurchase authorization of up to $1.5 billion following the completion of the existing $1 billion mandate.
Is the Steep Rise a Worry?
Murphy USA shares have surged by 187.1% during the last three years to blow away the S&P 500’s 23.2% and the Zacks Oil/Energy sector’s 58.4%. MUSA has skyrocketed roughly 63% during the last 12 months. If the company can continue to beat earnings expectations, like it did in three of the past four quarters, the bulls will likely take the stock even higher.
Image Source: Zacks Investment Research
Bottom Line
Given this backdrop, it should be prudent to consider buying shares of Murphy USA. While there are some apprehensions that the company may have gotten too far ahead of itself, the tightness in product demand should keep gasoline margins elevated going forward. This suggests strong long-term cash flows that should support higher price points for its shares.
Other Energy Stocks to Buy
Along with Murphy USA, investors interested in the energy sector might look at operators like CVR Energy (CVI - Free Report) , Sunoco LP (SUN - Free Report) and Global Partners LP (GLP - Free Report) , each carrying a Zacks Rank #1 currently.
CVR Energy: CVI beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters. CVR Energy has a trailing four-quarter earnings surprise of 62.2%, on average.
CVI is valued at around $3.8 billion. CVR Energy has seen its shares increase 21.3% in a year.
Sunoco LP: The 2024 Zacks Consensus Estimate for SUN indicates 35.9% year-over-year earnings per unit growth.
Sunoco is valued at around $6 billion. SUN has seen its units rise 33.9% in a year.
Global Partners LP: Global Partners is valued at some $1.6 billion. The 2024 Zacks Consensus Estimate for GLP indicates 3.7% year-over-year earnings per unit growth.
Global Partners beat the Zacks Consensus Estimate for earnings in two of the trailing four quarters and missed in the other two, the average being 5.9%. GLP units have surged 50.7% in a year.
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Why Murphy USA (MUSA) is a Go-to Stock in the Energy Space
Leading independent retailer of motor fuel and convenience merchandise in the United States, Murphy USA (MUSA - Free Report) has given an impressive performance over the past year. The company also has strong earnings trends to back up its performance.
This El Dorado, AR-based company, in its current form, came into existence following the 2013 spin-off of Murphy Oil Corporation’s downstream business into a separate, independent and publicly-traded entity. Murphy USA markets refined products through a chain of retail stations, almost all of which are located near a Walmart supercenter, primarily in the Southeast, Southwest and Midwest United States.
Let’s discuss the reasons that make Murphy USA an attractive pick:
Macro Tailwinds
Even as fears revolving around high inflation and slowing growth somewhat cloud the outlook for Oil/Energy, the commodity rallied in the first quarter of 2024, with both Brent and West Texas Intermediate (“WTI”) crude futures registering significant increases. Brent oil, the global benchmark, rose nearly 14%, while WTI, which tracks U.S. crude, surged approximately 16% during the quarter. As a matter fact, the global benchmark has surged above $90 per barrel, while U.S. crude broke $86 a barrel yesterday.
Several factors contributed to the uptrend in oil prices. One significant driver was the ongoing production cut by major oil-producing nations, including Russia and members of the OPEC cartel. These cuts helped tighten the supply-demand dynamics in the market, leading to a reduction in global oil inventories.
Geopolitical tensions also played a role in supporting oil prices. Escalating conflicts, such as the Russia-Ukraine war and the Israel-Palestine conflict, raised concerns about potential supply disruptions in key oil-producing regions. Additionally, attacks on ships in the Red Sea further heightened market anxieties, contributing to the bullish sentiment.
Solid Rank and VGM Score
Murphy USA is a Zacks Rank #1 (Strong Buy) stock in the Zacks Oil and Gas - Refining & Marketing industry, which carries a Zacks Industry Rank #97. Its industry rank places it in the top 38% of more than 250 Zacks industries. In addition to the favorable rank, MUSA enjoys a Value, Growth and Momentum Score of B, B and A, respectively, each helping it round out with a VGM Score of A. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best upside potential.
Analyst Estimates Raised
MUSA’s earnings revisions have also trended in the right direction over the past 60 days, as analysts have consistently taken up their numbers. The Zacks Consensus Estimate for Murphy USA’s 2024 bottom line has gone up from a profit of $24.69 to a profit of $26.32 during this timeframe, while the next year’s projection has gone up from a profit of $23.77 per share to $27.94.
Fundamental Strength
Murphy USA’s unique high-volume, low-cost business model helps it retain high profitability even in the fiercely competitive retail environment. The company, which sells more than 4 billion gallons of retail fuel annually, owns more than 90% of its gasoline stations. This allows Murphy USA to keep its operating expenses low. The proximity of Murphy USA’s fuel stations to Walmart supercenters helps the company to leverage the strong and consistent traffic that these stores attract, thereby driving above-average fuel sales volume.
Murphy USA's strategic focus on increasing customer spending and loyalty is evident in its impressive performance metrics. With existing loyal customers spending 50% more and new customers also contributing significantly, the company's growth trajectory is robust. Initiatives like digital transformation and personalized offers are driving increased sales and fueling organic growth, making it an attractive investment opportunity.
Murphy USA’s 2021 acquisition of QuickChek Corporation — a family-owned food and beverage chain — has helped the company to improve its offerings. In particular, QuickChek’s presence in large population centers like the New Jersey/New York region is likely to have driven Murphy USA’s merchandise revenues and margins.
Finally, MUSA remains committed to returning excess cash to its shareholders through continued share buyback programs. As part of this initiative, the fuel retailer recently approved a repurchase authorization of up to $1.5 billion following the completion of the existing $1 billion mandate.
Is the Steep Rise a Worry?
Murphy USA shares have surged by 187.1% during the last three years to blow away the S&P 500’s 23.2% and the Zacks Oil/Energy sector’s 58.4%. MUSA has skyrocketed roughly 63% during the last 12 months. If the company can continue to beat earnings expectations, like it did in three of the past four quarters, the bulls will likely take the stock even higher.
Image Source: Zacks Investment Research
Bottom Line
Given this backdrop, it should be prudent to consider buying shares of Murphy USA. While there are some apprehensions that the company may have gotten too far ahead of itself, the tightness in product demand should keep gasoline margins elevated going forward. This suggests strong long-term cash flows that should support higher price points for its shares.
Other Energy Stocks to Buy
Along with Murphy USA, investors interested in the energy sector might look at operators like CVR Energy (CVI - Free Report) , Sunoco LP (SUN - Free Report) and Global Partners LP (GLP - Free Report) , each carrying a Zacks Rank #1 currently.
You can see the complete list of today’s Zacks #1 Rank stocks here.
CVR Energy: CVI beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters. CVR Energy has a trailing four-quarter earnings surprise of 62.2%, on average.
CVI is valued at around $3.8 billion. CVR Energy has seen its shares increase 21.3% in a year.
Sunoco LP: The 2024 Zacks Consensus Estimate for SUN indicates 35.9% year-over-year earnings per unit growth.
Sunoco is valued at around $6 billion. SUN has seen its units rise 33.9% in a year.
Global Partners LP: Global Partners is valued at some $1.6 billion. The 2024 Zacks Consensus Estimate for GLP indicates 3.7% year-over-year earnings per unit growth.
Global Partners beat the Zacks Consensus Estimate for earnings in two of the trailing four quarters and missed in the other two, the average being 5.9%. GLP units have surged 50.7% in a year.