A prudent investment decision involves buying well-performing stocks at the right time while selling those that are exposed to risk. A rise in share price and strong fundamentals signal a stock’s bullish run.
Shares of Murphy USA Inc. (NYSE:MUSA) are likely to display an uptrend on the back of its solid third-quarter earnings performance and healthy fuel margins.
As a matter of fact, if you still haven’t taken advantage of the stock’s share price appreciation, it’s time you add it to your portfolio.
What Makes It a Promising Pick?
An Outperformer
A glance at the company’s price trend shows that the stock had an impressive show on the bourse in the past six months. Shares of Murphy USA have surged 41.4%, outperforming the 9.0% rally of its industry.
Top Rank & 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 offer the best investment opportunities. Thus, the company appears to be a compelling investment proposition at the moment.
Upbeat Q3 Performance
Murphy USA reported third-quarter 2019 earnings per share of $2.55, comprehensively beating the Zacks Consensus Estimate of $1.51 and also the year-ago figure of $1.38. Strength in the bottom line can be attributed to robust retail gallons and same-store sales (SSS) volumes, which rose 5.3% and 2.7% year over year, respectively. Further, the company’s total fuel contribution was up 30.6% year over year to $225.6 million, driven by volume and margin expansion.
Northward Estimate Revisions
The direction of estimate revisions serves as an important pointer when it comes to stock price movement. The Zacks Consensus Estimate for 2019 earnings has been revised 30.49% upward over the past 60 days. Earnings estimates for 2020 have moved 16.97% north.
Positive Earnings Surprise History
Murphy USA flaunts a stellar surprise record. Its earnings surpassed the Zacks Consensus Estimate in three of the preceding four quarters, the average beat being 29.86%.
Strong Balance Sheet
The company exited the third quarter with cash and cash equivalents of $247.7 million, skyrocketing 228.5% from the year-ago level.
During the quarter, the company bought back shares worth $109 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 Murphy USA to keep its operating expenses in check. The proximity of Murphy USA’s fuel stations to Walmart (NYSE: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 access fuel at a cost lower than most of its peers, which allows it 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 78% of its capital budget during the 2014-2018 period on buybacks.
Zacks Rank & Other Key Picks
Some other top-ranked stocks in the energy space are Kosmos Energy Ltd. (NYSE:KOS) , Marathon Petroleum Corporation (NYSE:MPC) and Magellan Midstream Partners, L.P. (NYSE:MMP) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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