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Murphy USA Reaches 52-Week High: Is the Stock Still Attractive?
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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 Thursday’s session at $535.50 after setting a new 52-week high of $536.09 earlier in the day. As shown in this chart, with the advance, MUSA shares are up more than 50% since the start of the year, handily outperforming the sector and the S&P 500. The company has also fared better than other downstream operators like Phillips 66 (PSX - Free Report) and Marathon Petroleum (MPC - Free Report) .
YTD Comparison
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 Stock
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.
Record-High Fuel Margins Boost Profitability: Murphy USA's core fuel business delivered exceptional results, achieving an all-time high in retail fuel margin contribution in the second quarter. The company reported all-in margins of 31.70 cents per gallon, up from the previous year. This demonstrates the strength and sustainability of Murphy USA’s business model, even in a low-volatility environment, positioning the company to continue capitalizing on favorable fuel margins and drive further growth.
Aggressive Share Buyback Program: Murphy USA's robust share buyback program significantly enhances shareholder value. Since 2014, the company has reduced its share count by over 50%. This aggressive buyback strategy, funded by both long-term debt and operating cash flow, has driven a 407.8% increase in earnings per share over the past decade.
Resilient Financial Profile: Murphy USA's strong financial position, characterized by a resilient asset base, low overhead costs and strategic liquidity management, underpins its long-term growth potential. The company’s ability to maintain high gross margins and a solid cash reserve allows it to weather volatile fuel prices and market fluctuations. With a significant focus on merchandise sales, which almost doubled from 2013 to 2023, the company is well-positioned to continue delivering strong operating income.
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.
While Murphy USA has strong long-term potential, the current market conditions and specific challenges facing the company cannot be ignored.
Red Flags for MUSA
Rising Costs: Murphy USA's operating expenses increased 6.2% year over year in the second quarter of 2024, driven by larger store formats, wage investments, and higher maintenance costs. With the company expecting full-year capital spending at the high end of its $400 million to $450 million range, these rising expenses could weigh on profitability.
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.
Debt Woes: Murphy USA's high debt levels leave it vulnerable to any volatility in commodity prices. Its total long-term debt is currently around $1.8 billion, with only $79.8 million in cash & cash equivalents. In fact, the company's debt-to-capitalization as of the end of the last reported quarter was high at 68.7%
Expensive Valuation: Finally, Murphy USA looks quite pricey for potential investors. Currently, MUSA shares trade at 20.31 times forward earnings, significantly above the industry average of 8.73 and its 5-year median of 16.13.
Miniscule Yield: Murphy USA’s dividend yield is currently under 1%, which is unattractive for income-focused investors. The company’s heavy emphasis on share buybacks over dividends may alienate this investor segment, reducing demand for the stock. Additionally, in a market environment where stable income is valued, the low yield could be seen as a drawback,
Final Thoughts on Murphy USA Stock
Murphy USA presents a compelling long-term investment case with its robust business model, strong financial performance and shareholder-friendly capital return programs. However, MUSA’s elevated valuation suggests that the market may have already priced in much of the company's potential growth. As a result, any negative developments or earnings disappointments could trigger a sharp decline in the stock price as investors reassess its overvaluation. 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. Till then, holding onto your shares could pay off.
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 Thursday’s session at $535.50 after setting a new 52-week high of $536.09 earlier in the day. As shown in this chart, with the advance, MUSA shares are up more than 50% since the start of the year, handily outperforming the sector and the S&P 500. The company has also fared better than other downstream operators like Phillips 66 (PSX - Free Report) and Marathon Petroleum (MPC - Free Report) .
YTD Comparison
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 Stock
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.
Record-High Fuel Margins Boost Profitability: Murphy USA's core fuel business delivered exceptional results, achieving an all-time high in retail fuel margin contribution in the second quarter. The company reported all-in margins of 31.70 cents per gallon, up from the previous year. This demonstrates the strength and sustainability of Murphy USA’s business model, even in a low-volatility environment, positioning the company to continue capitalizing on favorable fuel margins and drive further growth.
Aggressive Share Buyback Program: Murphy USA's robust share buyback program significantly enhances shareholder value. Since 2014, the company has reduced its share count by over 50%. This aggressive buyback strategy, funded by both long-term debt and operating cash flow, has driven a 407.8% increase in earnings per share over the past decade.
Resilient Financial Profile: Murphy USA's strong financial position, characterized by a resilient asset base, low overhead costs and strategic liquidity management, underpins its long-term growth potential. The company’s ability to maintain high gross margins and a solid cash reserve allows it to weather volatile fuel prices and market fluctuations. With a significant focus on merchandise sales, which almost doubled from 2013 to 2023, the company is well-positioned to continue delivering strong operating income.
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.
While Murphy USA has strong long-term potential, the current market conditions and specific challenges facing the company cannot be ignored.
Red Flags for MUSA
Rising Costs: Murphy USA's operating expenses increased 6.2% year over year in the second quarter of 2024, driven by larger store formats, wage investments, and higher maintenance costs. With the company expecting full-year capital spending at the high end of its $400 million to $450 million range, these rising expenses could weigh on profitability.
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.
Debt Woes: Murphy USA's high debt levels leave it vulnerable to any volatility in commodity prices. Its total long-term debt is currently around $1.8 billion, with only $79.8 million in cash & cash equivalents. In fact, the company's debt-to-capitalization as of the end of the last reported quarter was high at 68.7%
Expensive Valuation: Finally, Murphy USA looks quite pricey for potential investors. Currently, MUSA shares trade at 20.31 times forward earnings, significantly above the industry average of 8.73 and its 5-year median of 16.13.
Miniscule Yield: Murphy USA’s dividend yield is currently under 1%, which is unattractive for income-focused investors. The company’s heavy emphasis on share buybacks over dividends may alienate this investor segment, reducing demand for the stock. Additionally, in a market environment where stable income is valued, the low yield could be seen as a drawback,
Final Thoughts on Murphy USA Stock
Murphy USA presents a compelling long-term investment case with its robust business model, strong financial performance and shareholder-friendly capital return programs. However, MUSA’s elevated valuation suggests that the market may have already priced in much of the company's potential growth. As a result, any negative developments or earnings disappointments could trigger a sharp decline in the stock price as investors reassess its overvaluation. 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. Till then, holding onto your shares could pay off.
MUSA carries a Zacks Rank #3 (Hold) at present.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.