Here's Why Murphy USA (MUSA) Stock is Set for More Upside
A prudent investment decision involves buying well-performing stocks at the right time while selling those that are susceptible to risk. A rise in share price and strong fundamentals substantiate a stock’s bullish run.
Shares of Murphy USA Inc. MUSA are likely to display an uptrend on the back of its solid first-quarter earnings performance and healthy retail margins.
As a matter of fact, if you still haven’t taken advantage of this stock’s price upsurge, it’s time that you add it to your portfolio.
What Makes It an Investor Favorite?
An Outperformer
A glance at the company’s price trend shows that the stock had an impressive show on the bourse in the past 12 months. Shares of Murphy USA have surged 31.3% against the 16.5% decline of its industry.
Top Rank & Attractive VGM Score
This leading independent retailer of motor fuel and convenience merchandise in the United States currently has 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 of 1 or 2 (Buy) offer the best investment opportunities. Thus, the company appears to be a compelling investment proposition at the moment. You can see the complete list of today’s Zacks #1 Rank stocks here.
Stellar Q1 Performance
Murphy USA reported first-quarter 2020 earnings per share of $2.92, beating the Zacks Consensus Estimate of $2.8 and also significantly improved from the year-earlier quarter’s bottom line of 16 cents. This outperformance could be attributed to a strong retail margin of 26.9 cents per gallon, which soared 220% year over year and also outpaced the Zacks Consensus Estimate of 9.7 cents.
Northward Estimate Revisions
The direction of estimate revisions serves as a key indicator when it comes to stock price performance. The Zacks Consensus Estimate for 2020 earnings has been revised 46.6% upward over the past 60 days. Earnings estimates for 2021 have moved 15.76% north during the same period.
Positive Earnings Surprise History
Murphy USA has a decent surprise record. Its earnings surpassed the Zacks Consensus Estimate in three of the preceding four quarters and missed the same on one occasion, the average beat being 16.61%.
Strong Balance Sheet
The company exited the first quarter with cash and cash equivalents of $ 200.3 million, improving 11.03% from the year-ago level.
During the quarter, the company bought back shares worth $140.6 million.
Key Drivers
Murphy USA’s unique high-volume low-cost business model helps it retain strong profitability despite a fiercely competitive retail environment. The company, which sells more than 4 billion gallons of retail fuel annually, owns above 90% of its gasoline stations. This enables it to contain its operating expenses. The proximity of Murphy USA’s fuel stations to Walmart (WMT) supercenters aids the company to gain traction from the sturdy and consistent traffic that these stores attract, thereby driving its above-average fuel sales volume.
The company’s outsourcing of raw materials is another key catalyst. With access to pipelines and product distribution terminals, Murphy USA is able to avail of fuel at a cheaper cost than most of its peers can buy. This, in turn, allows the company to sell retail gasoline at a discount.
Through its shareholder-friendly capital allocations, Murphy USA is committed to return a portion of its free cash flow to its shareholders through continued and ongoing share repurchases. As a proof, the company spent 48% of its capital budget from 2015 to 2019 on stock buybacks.
Notwithstanding Murphy USA’s stellar first-quarter performance, the coronavirus outbreak and efforts to stop the contagion’s spread are likely to pose significant challenges to the business. In fact, the motor fuel retailer is already facing lower customer demand since mid-March. Besides, store wise average retail fuel volumes on APSM basis are currently trending below the earlier 2020 projection of 250-255 thousand gallons, which prompted this El Dorado, AR-based company to withdraw its retail fuel volume expectation for this year. But Murphy USA is still maintaining its guidance for organic growth, fuel break-even, corporate costs and capital spending.
Other Key Picks
Some other better-ranked stocks in the energy space are Gulfport Energy Corporation GPOR, Halliburton Company HAL and Cheniere Energy, Inc. LNG, each currently carrying a Zacks Rank #2 (Buy).
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