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Murphy (MUSA) Hits 52-Week High: Is There More Opportunity?
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Murphy USA (MUSA - Free Report) , a leading independent retailer of motor fuel and convenience merchandise in the United States, continues its uptrend. The stock closed the session on Jul 19 at $511.11 after setting a new 52-week high of $512.38 earlier on that day. As shown in this chart, with the advance, MUSA shares are up more than 43% since the start of the year, handily outperforming the industry, sector and the S&P 500.
YTD Performance
Image Source: Zacks Investment Research
Given this impressive year-to-date performance, can investors still consider buying MUSA stock, or should you book profits? Let’s delve deeper into the company’s fundamentals.
5 Reasons to Like Murphy USA
Strong Business Model: 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.
Expansion and Growth Initiatives: Murphy USA’s strategic expansion is on a strong trajectory with the opening of three new stores in Q1 2024 and plans to open 30-35 new stores by the year-end. The construction activity includes 22 raze-and-rebuild projects and nine new-to-industry stores, ensuring a significant increase in operational capacity. The company’s robust pipeline of new store openings, the highest since the COVID-19 outbreak, positions it for accelerated growth into 2025, enhancing long-term revenue and EBITDA growth.
Financial Performance and Outlook: Murphy USA's financial performance has been impressive, with a 2023 operating income of $842 million and EBITDA of $1 billion. For 2024, the company guides an EBITDA range of $1-$1.2 billion, reinforcing its strong financial health. The company's ability to generate substantial free cash flow, estimated at around $500 million for 2024, and its plan to maintain competitive fuel prices and invest in reduced-risk products are the key drivers of sustained profitability and stock price appreciation.
Acquisition Synergies: Murphy USA's purchase of QuickChek Corporation, a family-owned food and beverage chain, has enhanced the company's offerings. QuickChek's well-established presence in densely populated areas, such as the New Jersey/New York region, has positively impacted Murphy USA's merchandise revenues and margins.
Robust Capital Return Program: Murphy USA's capital return strategy is highly favorable for shareholders. The company targets the repurchase of approximately 1 million shares annually, alongside its increasing dividend program. Notably, the Q2 2024 dividend of 44 cents marked a 4.7% increase over sequentially and a 15.7% increase over the year-ago period. This commitment to returning capital to shareholders through buybacks and dividends enhances investor confidence and can positively impact the stock price.
While Murphy USA has strong long-term potential, the current market conditions and specific challenges facing the company cannot be ignored.
Risks for the Stock
Limited Growth in Discretionary Categories: Murphy USA's discretionary center store categories have experienced a slowdown, impacted by lower absolute fuel prices and fewer trips. This lag in sales, especially evident in products like Lotto Lottery, reflects a shift toward new and newly legalized online betting sites. With discretionary spending restrained, future growth in these categories may face continued challenges, limiting overall revenue diversification and potential profitability improvements.
High Capital Expenditures: Murphy USA reported $82 million in capital expenditures in Q1 2024, with a significant portion directed toward new store growth and digital transformation initiatives. While aimed at long-term growth, the high capital outlay amid uncertain economic conditions poses a risk. Should these investments fail to yield the expected returns, the company may face pressure on its cash flow and overall financial health, potentially impacting investor confidence and stock performance.
Weak Fuel Margins Impacting Earnings: Murphy USA's Q1 earnings came in disappointing due to weak fuel margins, signaling potential vulnerabilities in their core revenue stream. Weak fuel margins can severely impact profitability, as petroleum product sales dominate MUSA's revenue mix, accounting for over 80% of total revenues in 2023. This dependency means that any volatility in fuel prices or margins directly affects the bottom line, undermining investor confidence in consistent earnings growth.
Exposure to Declining Tobacco Sales: Murphy USA's heavy reliance on tobacco product sales poses a significant risk, given the global decline in tobacco consumption. Although MUSA is focused on reduced-risk products, the transition might not offset the declining traditional tobacco sales quickly enough. The diminishing tobacco market could lead to a substantial reduction in high-margin sales, negatively impacting overall profitability and investor sentiment.
Expensive Valuation: Finally, Murphy USA looks quite pricey for potential investors. Currently, MUSA shares trade at 19.55 times forward earnings, significantly above the industry average of 8.79 and its 5-year median of 16.13.
Final Thoughts
Murphy USA presents a compelling long-term investment case with its robust business model, strategic expansion plans, strong financial performance, and shareholder-friendly capital return programs. However, investors should exercise caution due to significant risks, including limited growth in discretionary categories, high capital expenditures, weak fuel margins, reliance on declining tobacco sales, and an expensive valuation. Given these mixed factors, a prudent approach would be to wait for a more favorable entry point before committing to a position in Murphy USA. In other words, we wouldn't recommend buying the stock until it delivers a superior operational performance in the upcoming Q2 release.
Murphy USA carries a Zacks Rank #3 (Hold) at present.
3 Energy Stocks to Buy
Investors interested in the energy sector might consider operators like SM Energy Company (SM - Free Report) , Sunoco LP (SUN - Free Report) and Tullow Oil (TUWOY - Free Report) . SM Energy and Sunoco currently sport a Zacks Rank #1 (Strong Buy) each, while Tullow carries a Zacks Rank #2 (Buy) each.
SM Energy Company: SM beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters. SM Energy has a trailing four-quarter earnings surprise of 13.8% on average.
SM is valued at around $5.4 billion. SM Energy has seen its shares increase 35% in a year.
Sunoco LP: The Zacks Consensus Estimate for 2024 earnings of Sunoco indicates 99.7% growth.
SUN is valued at around $5.8 billion. Sunoco has seen its stock rise 28.5% in a year.
Tullow Oil: TUWOY is valued at some $605.1 million. Over the past 90 days, the Zacks Consensus Estimate for 2024 earnings has increased 20%.
Tullow Oil enjoys a Value and Growth Score of A and B, respectively, each helping it round out with a VGM Score of A. TUWOY shares have gained 4.1% in a year.
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Murphy (MUSA) Hits 52-Week High: Is There More Opportunity?
Murphy USA (MUSA - Free Report) , a leading independent retailer of motor fuel and convenience merchandise in the United States, continues its uptrend. The stock closed the session on Jul 19 at $511.11 after setting a new 52-week high of $512.38 earlier on that day. As shown in this chart, with the advance, MUSA shares are up more than 43% since the start of the year, handily outperforming the industry, sector and the S&P 500.
YTD Performance
Image Source: Zacks Investment Research
Given this impressive year-to-date performance, can investors still consider buying MUSA stock, or should you book profits? Let’s delve deeper into the company’s fundamentals.
5 Reasons to Like Murphy USA
Strong Business Model: 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.
Expansion and Growth Initiatives: Murphy USA’s strategic expansion is on a strong trajectory with the opening of three new stores in Q1 2024 and plans to open 30-35 new stores by the year-end. The construction activity includes 22 raze-and-rebuild projects and nine new-to-industry stores, ensuring a significant increase in operational capacity. The company’s robust pipeline of new store openings, the highest since the COVID-19 outbreak, positions it for accelerated growth into 2025, enhancing long-term revenue and EBITDA growth.
Financial Performance and Outlook: Murphy USA's financial performance has been impressive, with a 2023 operating income of $842 million and EBITDA of $1 billion. For 2024, the company guides an EBITDA range of $1-$1.2 billion, reinforcing its strong financial health. The company's ability to generate substantial free cash flow, estimated at around $500 million for 2024, and its plan to maintain competitive fuel prices and invest in reduced-risk products are the key drivers of sustained profitability and stock price appreciation.
Acquisition Synergies: Murphy USA's purchase of QuickChek Corporation, a family-owned food and beverage chain, has enhanced the company's offerings. QuickChek's well-established presence in densely populated areas, such as the New Jersey/New York region, has positively impacted Murphy USA's merchandise revenues and margins.
Robust Capital Return Program: Murphy USA's capital return strategy is highly favorable for shareholders. The company targets the repurchase of approximately 1 million shares annually, alongside its increasing dividend program. Notably, the Q2 2024 dividend of 44 cents marked a 4.7% increase over sequentially and a 15.7% increase over the year-ago period. This commitment to returning capital to shareholders through buybacks and dividends enhances investor confidence and can positively impact the stock price.
While Murphy USA has strong long-term potential, the current market conditions and specific challenges facing the company cannot be ignored.
Risks for the Stock
Limited Growth in Discretionary Categories: Murphy USA's discretionary center store categories have experienced a slowdown, impacted by lower absolute fuel prices and fewer trips. This lag in sales, especially evident in products like Lotto Lottery, reflects a shift toward new and newly legalized online betting sites. With discretionary spending restrained, future growth in these categories may face continued challenges, limiting overall revenue diversification and potential profitability improvements.
High Capital Expenditures: Murphy USA reported $82 million in capital expenditures in Q1 2024, with a significant portion directed toward new store growth and digital transformation initiatives. While aimed at long-term growth, the high capital outlay amid uncertain economic conditions poses a risk. Should these investments fail to yield the expected returns, the company may face pressure on its cash flow and overall financial health, potentially impacting investor confidence and stock performance.
Weak Fuel Margins Impacting Earnings: Murphy USA's Q1 earnings came in disappointing due to weak fuel margins, signaling potential vulnerabilities in their core revenue stream. Weak fuel margins can severely impact profitability, as petroleum product sales dominate MUSA's revenue mix, accounting for over 80% of total revenues in 2023. This dependency means that any volatility in fuel prices or margins directly affects the bottom line, undermining investor confidence in consistent earnings growth.
Exposure to Declining Tobacco Sales: Murphy USA's heavy reliance on tobacco product sales poses a significant risk, given the global decline in tobacco consumption. Although MUSA is focused on reduced-risk products, the transition might not offset the declining traditional tobacco sales quickly enough. The diminishing tobacco market could lead to a substantial reduction in high-margin sales, negatively impacting overall profitability and investor sentiment.
Expensive Valuation: Finally, Murphy USA looks quite pricey for potential investors. Currently, MUSA shares trade at 19.55 times forward earnings, significantly above the industry average of 8.79 and its 5-year median of 16.13.
Final Thoughts
Murphy USA presents a compelling long-term investment case with its robust business model, strategic expansion plans, strong financial performance, and shareholder-friendly capital return programs. However, investors should exercise caution due to significant risks, including limited growth in discretionary categories, high capital expenditures, weak fuel margins, reliance on declining tobacco sales, and an expensive valuation. Given these mixed factors, a prudent approach would be to wait for a more favorable entry point before committing to a position in Murphy USA. In other words, we wouldn't recommend buying the stock until it delivers a superior operational performance in the upcoming Q2 release.
Murphy USA carries a Zacks Rank #3 (Hold) at present.
3 Energy Stocks to Buy
Investors interested in the energy sector might consider operators like SM Energy Company (SM - Free Report) , Sunoco LP (SUN - Free Report) and Tullow Oil (TUWOY - Free Report) . SM Energy and Sunoco currently sport a Zacks Rank #1 (Strong Buy) each, while Tullow carries a Zacks Rank #2 (Buy) each.
You can see the complete list of today’s Zacks #1 Rank stocks here.
SM Energy Company: SM beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters. SM Energy has a trailing four-quarter earnings surprise of 13.8% on average.
SM is valued at around $5.4 billion. SM Energy has seen its shares increase 35% in a year.
Sunoco LP: The Zacks Consensus Estimate for 2024 earnings of Sunoco indicates 99.7% growth.
SUN is valued at around $5.8 billion. Sunoco has seen its stock rise 28.5% in a year.
Tullow Oil: TUWOY is valued at some $605.1 million. Over the past 90 days, the Zacks Consensus Estimate for 2024 earnings has increased 20%.
Tullow Oil enjoys a Value and Growth Score of A and B, respectively, each helping it round out with a VGM Score of A. TUWOY shares have gained 4.1% in a year.