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Why Murphy USA (MUSA) is a Go-To-Stock in the Energy Sector
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Even as fears revolving around high inflation and slowing growth somewhat clouded the outlook for Oil/Energy, it has remained the best S&P 500 sector this year. The space has generated a total return of almost 31% in 2022 compared with the S&P 500’s loss of around 17%.
Apart from a constructive fundamental picture, the sector is enjoying support from geopolitical uncertainty amid Russia’s military operations in Ukraine. In March, crude prices surged to multi-year highs of $130 on concerns about supplies from Russia, which is one of the world's largest producers of the commodity.
Agreed, oil has pulled back from those lofty levels, However, the commodity still has enough reasons to stay elevated in the near-to-medium term, with the conflict showing no sign of a quick resolution, the risk of dwindling inventory and the influential oil exporters’ group OPEC sticking to a conservative production profile.
Naturally, some stocks have been impressive since the start of the year. These also have strong earnings trends to back up their moves.
One such company is Murphy USA (MUSA - Free Report) . It is a leading independent retailer of motor fuel and convenience merchandise in the United States. The 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:
Solid Rank and VGM Score
Murphy USA is a Zacks Rank #2 (Buy) stock in the Zacks Oil and Gas - Refining & Marketing industry, which carries a Zacks Industry Rank #55 — placing it in the top 22% of around 250 Zacks industries. In addition to the favorable rank, MUSA enjoys a Zacks Value and Growth Style Scores of A each to help 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 or 2 (Buy), offer the best upside potential.
Estimate-Beating Recent Earnings
MUSA posted robust Q3 results on Oct 26, with EPS of $9.28 handily beating the Zacks Consensus Estimate of $7.82 and improving significantly from the year-earlier bottom line of $3.98. The outperformance could be attributed to a rise in the retail gasoline price and a higher retail margin of 37.6 cents per gallon, up 41.4% year over year.
Meanwhile, Murphy USA’s operating revenues of $6.2 billion rose 34.7% year over year and beat the consensus mark by $230 million, primarily due to improved merchandise sales.
Current Pullback a Buying Opportunity
After MUSA shares bottomed out (around $80) during the start of the pandemic, they have turned it around in style. Murphy USA peaked in October at $323 but has fallen to around $280 since then. Despite this drop, the stock is still up 41.5% on the year while the markets have gone lower.
This powerful uptrend during a bear market indicates that investors should take advantage of the discounted levels and start looking at the name to see if it’s right for their portfolio. With the company experiencing the best market conditions in years, we believe that the MUSA stock has enough firepower left to keep chugging along.
Image Source: Zacks Investment Research
Analyst Estimates Raised
MUSA’s earnings revisions have also trended in the right direction over the last 60 days, as analysts have consistently taken up their numbers. As a matter of fact, the Zacks Consensus Estimate for Murphy USA’s 2022 bottom line has gone up from a profit of $25.89 to a profit of $26.99 during this timeframe, while next year’s number is a rise from a profit of $16.47 per share to $17.79.
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.
The industry’s improved fundamentals in the form of constrained supply and robust demand for refined products like gasoline have led to rising refining profitability for the players involved. In fact, gasoline prices in the United States have repeatedly soared to new record highs. As a reflection of this, Murphy USA’s average retail gasoline price during the third quarter came in at $3.67 per gallon, up from $2.89 per gallon a year ago.
Murphy USA’s 2021 acquisition of QuickChek Corporation — a family-owned food and beverage chain located — has helped the company in improving 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’s disciplined capital allocation strategy between growth and stock buybacks has been a key differentiator. While organic growth remains the top priority for Murphy USA, the company’s high cash flow generating ability is expected to support its $1 billion repurchase plan.
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, especially with the prevailing inflationary pressures, 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 Halliburton (HAL - Free Report) , Nine Energy Service (NINE - Free Report) and Patterson-UTI Energy (PTEN - Free Report) , each sporting a Zacks Rank #1, currently.
Halliburton: Halliburton is valued at some $33.6 billion. The Zacks Consensus Estimate for HAL’s 2022 earnings has been revised 3% upward over the past 90 days.
Halliburton, headquartered in Houston, TX, has a trailing four-quarter earnings surprise of roughly 5.5%, on average. HAL shares have gained 59.8% so far this year.
Nine Energy Service: Nine Energy Service is valued at some $303.6 million. The Zacks Consensus Estimate for NINE’s 2022 earnings has been revised 1,325% upward over the past 60 days.
Nine Energy Service, headquartered in Houston, TX, delivered a 137.5% beat in Q3. NINE shares have surged 882% year to date.
Patterson-UTI Energy: PTEN beat the Zacks Consensus Estimate for earnings in three of the last four quarters. The company has a trailing four-quarter earnings surprise of roughly 169.2%, on average.
Patterson-UTI is valued at around $3.7 billion. PTEN has seen its shares gain 99.8% in 2022.
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Why Murphy USA (MUSA) is a Go-To-Stock in the Energy Sector
Even as fears revolving around high inflation and slowing growth somewhat clouded the outlook for Oil/Energy, it has remained the best S&P 500 sector this year. The space has generated a total return of almost 31% in 2022 compared with the S&P 500’s loss of around 17%.
Apart from a constructive fundamental picture, the sector is enjoying support from geopolitical uncertainty amid Russia’s military operations in Ukraine. In March, crude prices surged to multi-year highs of $130 on concerns about supplies from Russia, which is one of the world's largest producers of the commodity.
Agreed, oil has pulled back from those lofty levels, However, the commodity still has enough reasons to stay elevated in the near-to-medium term, with the conflict showing no sign of a quick resolution, the risk of dwindling inventory and the influential oil exporters’ group OPEC sticking to a conservative production profile.
Naturally, some stocks have been impressive since the start of the year. These also have strong earnings trends to back up their moves.
One such company is Murphy USA (MUSA - Free Report) . It is a leading independent retailer of motor fuel and convenience merchandise in the United States. The 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:
Solid Rank and VGM Score
Murphy USA is a Zacks Rank #2 (Buy) stock in the Zacks Oil and Gas - Refining & Marketing industry, which carries a Zacks Industry Rank #55 — placing it in the top 22% of around 250 Zacks industries. In addition to the favorable rank, MUSA enjoys a Zacks Value and Growth Style Scores of A each to help 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 or 2 (Buy), offer the best upside potential.
Estimate-Beating Recent Earnings
MUSA posted robust Q3 results on Oct 26, with EPS of $9.28 handily beating the Zacks Consensus Estimate of $7.82 and improving significantly from the year-earlier bottom line of $3.98. The outperformance could be attributed to a rise in the retail gasoline price and a higher retail margin of 37.6 cents per gallon, up 41.4% year over year.
Meanwhile, Murphy USA’s operating revenues of $6.2 billion rose 34.7% year over year and beat the consensus mark by $230 million, primarily due to improved merchandise sales.
Current Pullback a Buying Opportunity
After MUSA shares bottomed out (around $80) during the start of the pandemic, they have turned it around in style. Murphy USA peaked in October at $323 but has fallen to around $280 since then. Despite this drop, the stock is still up 41.5% on the year while the markets have gone lower.
This powerful uptrend during a bear market indicates that investors should take advantage of the discounted levels and start looking at the name to see if it’s right for their portfolio. With the company experiencing the best market conditions in years, we believe that the MUSA stock has enough firepower left to keep chugging along.
Image Source: Zacks Investment Research
Analyst Estimates Raised
MUSA’s earnings revisions have also trended in the right direction over the last 60 days, as analysts have consistently taken up their numbers. As a matter of fact, the Zacks Consensus Estimate for Murphy USA’s 2022 bottom line has gone up from a profit of $25.89 to a profit of $26.99 during this timeframe, while next year’s number is a rise from a profit of $16.47 per share to $17.79.
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.
The industry’s improved fundamentals in the form of constrained supply and robust demand for refined products like gasoline have led to rising refining profitability for the players involved. In fact, gasoline prices in the United States have repeatedly soared to new record highs. As a reflection of this, Murphy USA’s average retail gasoline price during the third quarter came in at $3.67 per gallon, up from $2.89 per gallon a year ago.
Murphy USA’s 2021 acquisition of QuickChek Corporation — a family-owned food and beverage chain located — has helped the company in improving 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’s disciplined capital allocation strategy between growth and stock buybacks has been a key differentiator. While organic growth remains the top priority for Murphy USA, the company’s high cash flow generating ability is expected to support its $1 billion repurchase plan.
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, especially with the prevailing inflationary pressures, 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 Halliburton (HAL - Free Report) , Nine Energy Service (NINE - Free Report) and Patterson-UTI Energy (PTEN - Free Report) , each sporting a Zacks Rank #1, currently.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Halliburton: Halliburton is valued at some $33.6 billion. The Zacks Consensus Estimate for HAL’s 2022 earnings has been revised 3% upward over the past 90 days.
Halliburton, headquartered in Houston, TX, has a trailing four-quarter earnings surprise of roughly 5.5%, on average. HAL shares have gained 59.8% so far this year.
Nine Energy Service: Nine Energy Service is valued at some $303.6 million. The Zacks Consensus Estimate for NINE’s 2022 earnings has been revised 1,325% upward over the past 60 days.
Nine Energy Service, headquartered in Houston, TX, delivered a 137.5% beat in Q3. NINE shares have surged 882% year to date.
Patterson-UTI Energy: PTEN beat the Zacks Consensus Estimate for earnings in three of the last four quarters. The company has a trailing four-quarter earnings surprise of roughly 169.2%, on average.
Patterson-UTI is valued at around $3.7 billion. PTEN has seen its shares gain 99.8% in 2022.