Little Excitement Around Murphy USA Inc.’s (NYSE:MUSA) Earnings

Murphy USA Inc.’s (NYSE:MUSA) price-to-earnings (or “P/E”) ratio of 11.6x might make it look like a buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 20x and even P/E’s above 39x are quite common. Although, it’s not wise to just take the P/E at face value as there may be an explanation why it’s limited.

Murphy USA certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If you like the company, you’d be hoping this isn’t the case so that you could potentially pick up some stock while it’s out of favour.

View our latest analysis for Murphy USA

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NYSE:MUSA Price Based on Past Earnings August 19th 2020
Want the full picture on analyst estimates for the company? Then our free report on Murphy USA will help you uncover what’s on the horizon.

Is There Any Growth For Murphy USA?

The only time you’d be truly comfortable seeing a P/E as low as Murphy USA’s is when the company’s growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 147% gain to the company’s bottom line. Pleasingly, EPS has also lifted 227% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 11% each year as estimated by the four analysts watching the company. That’s not great when the rest of the market is expected to grow by 13% per year.

With this information, we are not surprised that Murphy USA is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What We Can Learn From Murphy USA’s P/E?

Typically, we’d caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We’ve established that Murphy USA maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. At this stage investors feel the potential for an improvement in earnings isn’t great enough to justify a higher P/E ratio. It’s hard to see the share price rising strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we’ve spotted 3 warning signs for Murphy USA (of which 1 shouldn’t be ignored!) you should know about.

It’s important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20x).

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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