We are upbeat about Murphy USA Inc’s (MUR - Free Report) prospects and believe it is a promising pick at the moment.
Currently, the company sports a Zacks Rank #1 (Strong Buy) and 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 or 2 (Buy) offer the best investment opportunities. It belongs to the Zacks Oil & Gas - Refining and Marketing industry, currently placed in the top 30% (with Zacks Industry Rank #77) of more than 250 Zacks industries. Notably, the top 50% of the Zacks ranked industries tend to outperform the bottom 50% by a factor of more than 2 to 1.
Let’s analyze the factors that are favoring this energy player.
High Fuel Sales and Low Operating Costs: The proximity of Murphy USA’s fuel stations to Walmart supercenters enables it to leverage the strong and consistent traffic that these stores attract. This drives above-average fuel sales volume, which increased around 3% year over year in 2018. The company, which sells more than 4 billion gallons of retail fuel annually, owns more than 90% of its gasoline stations. This enables the company to keep operating expenses low.
Its unique high-volume low-cost business model helps it retain high profitability amid the fiercely competitive retail environment. The company’s fuel supply chain along with the expansion of the retail stores makes it a low cost and high-volume leader in fuel and tobacco as well as drives sales.
Shareholder-Friendly Policies: Murphy USA is committed to return a part of its free cash flow to shareholders through ongoing share repurchases. Evidently, the company spent 48% of its capital budget through 2014 to 2017 on stock buybacks. While it has not officially announced any new buyback program lately, returning value to shareholders is among Murphy USA’s top priorities. The company’s strong cash flows provide it flexibility to execute buybacks in 2019.
Growth Investments: Murphy USA efficiently uses capital by allocating into high margin, oil-weighted assets by investing in the profitable Eagle Ford Shale business along with supporting free cash flow providing offshore assets.
For 2019, the company anticipates capital expenditure in the range of $225-$275 million versus $194 million incurred in 2018. Of which, about $110 million is expected to be apportioned for exploration. Of the remaining, 53% will be allocated for drilling, 21% for geological as well as geophysical studies, and the rest will be utilized for other explorations costs.
Other Stocks to Consider
Some other top-ranked players in the energy space are Antero Resources Corporation (AR - Free Report) , NGL Energy Partners LP (NGL - Free Report) and CrossAmerica Partners L.P. (CAPL - Free Report) , each sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
In the past 60 days, earnings estimates for all these three stocks have improved for the current year. Further, sales of Antero Resources, NGL Energy Partners and CrossAmerica Partners for the current quarter is expected to rise by 14.6%, 18% and 14.7%, respectively.
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