Accelerated Store Openings And Better Customer Service Will Drive Future Revenue

Key Takeaways

• Accelerated store expansion and larger formats aim to drive long-term revenue, profitability, and EPS growth.
  
• Share repurchases and enhanced customer service strategies are poised to improve EPS and customer loyalty.
  
• Rising prices, severe weather, and food inflation pressures could impede Murphy USA's revenue, margins, and earnings growth.

Catalysts

Together with subsidiaries, engages in marketing of retail motor fuel products and convenience merchandise.

• The acceleration of new store openings, with a target of up to 50 new stores in 2025, is expected to drive revenue growth due to increased sales from more locations.
  
• Strategies to enhance in-store performance and innovate customer service are projected to improve net margins and customer loyalty over time.
  
• The strategic use of share repurchases, which has significantly reduced the number of outstanding shares, is poised to enhance earnings per share (EPS) and drive shareholder value.
  
• The merchandise contributions from both nicotine and non-nicotine categories are anticipated to continue growing in 2025, supporting revenue growth through an expanded product offering.
  
• Sustained investment in larger format stores, despite their initial higher operating costs, is expected to contribute more significantly to long-term profitability and EPS growth as these stores reach maturity and maximize their merchandise potential.

Murphy USA Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Murphy USA's revenue will grow by 7.3% annually over the next 3 years.
• Analysts are assuming Murphy USA's profit margins will remain the same at 2.8% over the next 3 years.
• Analysts expect earnings to reach $618.8 million (and earnings per share of $31.66) by about May 2028, up from $502.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.9x on those 2028 earnings, down from 19.8x today. This future PE is greater than the current PE for the US Specialty Retail industry at 15.2x.
• Analysts expect the number of shares outstanding to decline by 3.39% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.97%, as per the Simply Wall St company report.

Murphy USA Future Earnings Per Share Growth

Risks

• Rising prices and severe weather negatively impacted transactions across the Murphy USA network, potentially affecting future revenue and net margins if such conditions persist.
  
• Continued pressure on food inflation and QSR value competition pressured QuickChek markets, which could lead to weaker revenue and earnings growth if these trends continue.
  
• A well-supplied product market with low volatility impacted the PS&W side of the business, leading to lower-than-expected all-in margins, potentially affecting net margins and EBITDA.
  
• Underperformance in new store openings against internal schedule targets led to fewer operative store months, impacting fuel gallons and merchandise sales, potentially slowing revenue and earnings growth.
  
• Challenges in the QuickChek business could result in slightly lower year-over-year contribution dollars, which may impact overall revenue and net earnings growth.

Valuation

• The analysts have a consensus price target of $517.7 for Murphy USA based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $600.0, and the most bearish reporting a price target of just $400.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $22.1 billion, earnings will come to $618.8 million, and it would be trading on a PE ratio of 17.9x, assuming you use a discount rate of 8.0%.
• Given the current share price of $502.61, the analyst price target of $517.7 is 2.9% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.