Here’s why Hold is a suitable strategy for Murphy USA (MUSA) now

Murphy USA Inc. MUSA is based on solid volumes and strong liquidity. However, its debt burden is a downside. The company has seen revisions to the northward estimates for 2021 earnings over the past 60 days.

He currently has a Zacks Rank # 3 (Hold) and a VGM Score of A. Our research shows that stocks with a VGM Score of A or B combined with a Zacks Rank # 1 (Strong Buy) 2 (Buy) or 3 offer the best investment opportunities. You can see The full list of today’s Zacks # 1 Rank stocks here.

This leading independent retailer of fuel and consumer staples in the United States has a surprise profit for the last four quarters of 18.66%, on average.

Thanks to its robust outlook, the title is worth keeping for now.

What favors the stock?

A glance at the company’s price trend shows that the stock has had an impressive run on the stock exchanges in the period since the start of the year. Murphy USA shares were up 18.2% from its industry’s 15.6% increase.

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Murphy USA’s unique high volume, low cost business model allows it to maintain strong profitability despite a fiercely competitive retail environment. The company, which sells more than 4 billion gallons of fuel annually, owns more than 90 percent of its gas stations. This allows it to contain its operating expenses. Proximity to Murphy USA gas stations with Walmart WMT supercenters help the business take advantage of the constant flow of traffic these stores attract, resulting in above-average fuel sales volume.

Another key enabler is the outsourcing of raw materials by the company. With its access to pipelines and product distribution terminals, Murphy USA is able to source fuel at a lower cost than most can afford. This, in turn, allows the company to retail gasoline at a reduced price.

Through its shareholder-friendly capital allocations, Murphy USA is committed to returning a portion of its free cash flow to its shareholders through ongoing and ongoing share buybacks. As proof, the company devoted 48% of its investment budget from 2015 to 2019 to share buybacks.

The company is currently building up to 50 larger format stores each year since the start of this year, as well as 25 raze-and-rebuilds. In addition, in the last quarter published, Murphy USA’s forecast for 2021 included 34 to 38 new stores and up to 31 shaving and rebuilding operations for 2021. The fuel retailer added that it was also open to inorganic growth.

Management believes that the strong operating performance and positive trends of the company will enable its stock to achieve sustainable EBITDA of over $ 500 million in 2021, two years ahead of schedule.

Factors discouraging title growth

However, there are a few factors that could hamper the progress of the stock.

Being in the convenience store, Murphy USA is heavily dependent on tobacco sales. With the drop in smoking rates, the company’s tobacco mixes face persistent pressure. Lukewarm tobacco sales not only affect its revenue performance, but also limit margin growth.

In addition, Murphy USA’s high level of indebtedness remains a concern, which makes it vulnerable to any volatility in commodity prices. Its total debt currently stands at over $ 1.8 billion with only $ 165 million in cash and cash equivalents. Its debt ratio at the end of the second quarter of 2021 was 70.5%, deteriorating from 69.9% in the sequential quarter.

Actions to consider

Top ranked energy players include Matador Resource Company MTDR and Continental Resources, Inc. CLR, each currently displaying a Zacks rank of 1.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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