Since its spinoff from Murphy Oil in 2013, Murphy USA (NYSE: MUSA) has been a financial powerhouse, delivering a whopping total return of 1,000% to investors. This surge in value has left even the S&P 500 in the dust, reflecting the company’s relentless pursuit of share repurchases, which now stands at 55% of outstanding shares. But there’s more to this story than mere buybacks – let’s delve into what positions Murphy USA for lasting success.
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The Heart of Murphy USA’s Success: Embracing a Low-Price Strategy
With a network encompassing 1,733 stores primarily situated across the southern and southeastern United States, Murphy USA caters to over 2 million customers on a daily basis, largely positioned next to Walmart outlets. This strategic placement has propelled Murphy USA to become the fourth-largest convenience store chain in the nation. While the exclusive ties to Walmart may have loosened, collaboration persists, with Walmart+ members enjoying discounts of up to 10 cents per gallon at Murphy stores.
The “everyday low price” ethos embraced by Murphy USA has been a game-changer, with the company offering fuel prices that are $0.12 per gallon lower on average compared to its competitors. In a convenience store industry where 60% of players operate single stores, Murphy’s scale and pricing advantage position it as a formidable force in capturing market share. The Murphy Drive Rewards initiative, which swiftly amassed 8 million members since its 2019 launch, underscores the allure of its value proposition to budget-conscious consumers.
The company’s aggressive expansion plan aims for 45 to 50 new stores annually till 2028, targeting fresh markets where its low-price model can disrupt incumbents. With significant greenfield opportunities awaiting exploration and a compelling pricing edge, Murphy USA seems poised for sustained growth in the long haul.
What sets Murphy USA apart is its ability to maintain healthy fuel margins exceeding $0.30 per gallon while prioritizing competitive pricing. With nearly 5 billion gallons of fuel sold yearly and merchandise sales per square foot ranking in the top quartile, the company stands as a robust generator of cash flow.
This cash prowess fuels in-house growth initiatives, with surplus free cash flow enabling ongoing share repurchases. Since its spinoff, Murphy USA has steadily reduced its share count by 7% annually, successfully eliminating 55% of its initial outstanding shares. The graphs below vividly illustrate the impact of these strategic buybacks.
MUSA cash from operations (TTM) data by YCharts; TTM = trailing 12 months.
With free cash flow surging by 138% in the last decade, the company’s cash flow per share skyrocketed fivefold, driven by the diminishing share count. Backed by its scale, expansion trajectory, and robust cash streams, Murphy USA appears well-positioned to persist in reducing its share count far into the future.
Evaluating Investment Prospects in Murphy USA
Boasting total returns exceeding 1,000% since 2013, Murphy USA’s stellar track record and ongoing potential have captivated market observers. While the company commands a premium valuation relative to its historical metrics, its current price-to-earnings ratio of 16 remains below the S&P 500 average of 23, suggesting an intriguing valuation proposition.
The convenience store sector grapples with an inability to match Murphy USA’s pricing prowess, signaling enduring multibagger potential as the company expands geographically and proceeds with its share repurchase strategy.
Considering an Investment in Murphy USA
Before committing funds to Murphy USA, investors should weigh the following:
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Josh Kohn-Lindquist holds positions in Murphy USA. The Motley Fool has positions in and recommends Walmart. The Motley Fool recommends Murphy Oil. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
